DOES PRICE EFFECTS SUPPLY & DEMAND ?
Yes price effect the supply and demand. Before going to their relation of price with demand and supply let us know what is price.
Price:
Price is an amount of money that you have to pay in order to buy it. Generally price include cost of production plus profit
Demand:
Consumer's desire,ability and willingness to buy a goods at various prices.
Supply:
Ability of producers to offer the goods in the market for a sale at various prices
How Price Effect Demand ?
Let us take a example of a shirt. If a consumer want to buy a shirt value of 500 per piece the consumer can buy 2 shirts. If the shirts go on sale the consumer can tend to buy more shirts,if the cost of shirt double the consumer can buy fewer shirts only. As goods become expensive people tend to demand less on them.
The above example says that if a price of a product decreases the consumer tend to buy more shirt and vice versa. This shows a inverse relationship between demand and price
P ∝ 1/D
How Price Effect Supply ?
Let us take an example of shirts the price of shirt rises automatically the profit of a company increases and this leads to increase the supply of shirts.
The above example says that if the price of an product increases the producers tend to produce more shirts product and vice versa. This shows direct relation between supply and price.
P ∝ S
Conclusion:
But in general when supply of a product increases the product will become more cheaper in market than before. This tends to decrease or fall in price
At same point, too much of demand for a product will cause supply to diminish as a result price will rise and product demand will go down.
Due to this the supply & demand should reach an equilibrium. The amount of goods produce should be equal to the amount of goods are demanded.
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