How price is determined by demand and supply?
In the supply and demand model of price determination, there is never a surplus or shortage of goods at the equilibrium level. The market always settles at the point where supply equals demands. If demand increases (decreases) and supply is unchanged, then it leads to a higher (lower) equilibrium price and quantity.
Example
Supply refers to the amount of goods that are available. Demand refers to how many people want those goods. When supply of a product goes up, the price of a product goes down and demand for the product can rise because it costs loss.
Example
Designer Jeans
In this case we will look at how a change in demand can change the price of designer jeans.
When a new style of designer jeans was introduced, they were the height of fashion and very popular. Everyone wanted to own a pair of these jeans. The designer ordered more of the jeans, but still had a limited amount to sell. With demand so high, the designer could charge a very high price for the jeans
A year later, however, things changed. People grew tired of the jeans and they were no longer popular. The demand for the designer jeans fell. The only way the designer could sell any was on discount racks. The price dropped significantly.
In the supply and demand model of price determination, there is never a surplus or shortage of goods at the equilibrium level. The market always settles at the point where supply equals demands. If demand increases (decreases) and supply is unchanged, then it leads to a higher (lower) equilibrium price and quantity.
Example
Supply refers to the amount of goods that are available. Demand refers to how many people want those goods. When supply of a product goes up, the price of a product goes down and demand for the product can rise because it costs loss.
Example
Designer Jeans
In this case we will look at how a change in demand can change the price of designer jeans.
When a new style of designer jeans was introduced, they were the height of fashion and very popular. Everyone wanted to own a pair of these jeans. The designer ordered more of the jeans, but still had a limited amount to sell. With demand so high, the designer could charge a very high price for the jeans
A year later, however, things changed. People grew tired of the jeans and they were no longer popular. The demand for the designer jeans fell. The only way the designer could sell any was on discount racks. The price dropped significantly.
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