Supply and Demand

Supply and Demand and Price Elasticity Paper

Shirley Moore Lucas Mendoza

Principles of Economics ECO/212

February 1, 2010
Joseph Zodi
Phoenix Online

What causes changes in supply and demand? Demand is the action of the consumer and supply is the action of the producers. Consumer’s demands are the motivation to the producers to supply the market with goods. The law of demand states that when all things are equal the demand will decrease when the price increases. The law of supply states that all things are equal the quanity supplied increases when the price increases. There are several contributing factors to the change in supply and demand. The causes have both a negative and a positive effect on the supply and demand.

    A decrease in the consumer’s income will cause a decrease in the demand of non-essentials. Consumers are less likely to spend money on vacations, new cars and homes. The limited budget will probably be disbursed one food, clothing and rent. An increase in income will result in an increase in demand of products.
    Price increase of product can result in a decrease of demand. Consumers are less likely to spend the extra money on the product. If the price decreases the demand will increase.
    Inferior good will decrease the demand for a good. Superior goods at the same price will increase in demand.
    Close substitutes can also affect the demand of goods. If hamburger go on sale then it is likely there will be an increase in hamburger buns. If the price of hamburger goes up the demand for hamburger buns will decrease.
    Personal preferences can increase or decrease supply and demand. An individual’s tastes are hard to measure but it does change the supply and demand of goods.   If you love watermelon then your demand will increase or if you don’t like watermelon your demand decrease
    The consumer’s expectation about the future can also increase or decrease the demand for products. If you know you are going to have a...