Baxramov javohir 20. 119-guruh talabasi
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Demand in Economics
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BAXRAMOV JAVOHIR 20.119-GURUH TALABASI Demand in Economics Plan: 1. Demand: What is Economics 2. Economics Demand is an economic principle referring to a consumer's desire to purchase goods and services and willingness to pay a price for a specific good or service. Holding all other factors constant, an increase in the price of a good or service will decrease the quantity demanded, and vice versa . Market demand is the total quantity demanded across all consumers in a market for a given good. Aggregate demand is the total demand for all goods and services in an economy. Multiple stocking strategies are often required to handle demand. KEY TAKEAWAYS Demand refers to consumers' desire to purchase goods and services at given prices. Demand can mean either market demand for a specific good or aggregate demand for the total of all goods in an economy. Demand, along with supply, determines the actual prices of goods and the volume of goods that changes hands in a market. What is Demand? Understanding Demand Businesses often spend a considerable amount of money to determine the amount of demand the public has for their products and services. How much of their goods will they actually be able to sell at any given price? Incorrect estimations either result in money left on the table if demand is underestimated or losses if demand is overestimated. Demand is what helps fuel the economy, and without it, businesses would not produce anything. Demand is closely related to supply . While consumers try to pay the lowest prices they can for goods and services, suppliers try to maximize profits. If suppliers charge too much, the quantity demanded drops and suppliers do not sell enough product to earn sufficient profits. If suppliers charge too little, the quantity demanded increases but lower prices may not cover suppliers’ costs or allow for profits. Some factors affecting demand include the appeal of a good or service, the availability of competing goods, the availability of financing , and the perceived availability of a good or service. Supply and Demand Curves Supply and demand factors are unique for a given product or service. These factors are often summed up in demand and supply profiles plotted as slopes on a graph. On such a graph, the vertical axis denotes the price, while the horizontal axis denotes the quantity demanded or supplied. A demand curve slopes downward, from left to right. As prices increase, consumers demand less of a good or service. A supply curve slopes upward. As prices increase, suppliers provide more of a good or service. Market Equilibrium The point where supply and demand curves intersect represents the market clearing or market equilibrium price. An increase in demand shifts the demand curve to the right. The curves intersect at a higher price and consumers pay more for the product. Equilibrium prices typically remain in a state of flux for most goods and services because factors affecting supply and demand are always changing. Free, competitive markets tend to push prices toward market equilibrium. Market Demand vs. Aggregate Demand The market for each good in an economy faces a different set of circumstances, which vary in type and degree. In macroeconomics, we can also look at aggregate demand in an economy. Aggregate demand refers to the total demand by all consumers for all good and services in an economy across all the markets for individual goods. Because aggregate includes all goods in an economy, it is not sensitive to competition or substitution between different goods or changes in consumer preferences between various goods in the same way that demand in individual good markets can be. Macroeconomic Policy and Demand Fiscal and monetary authorities, such as the Federal Reserve , devote much of their macroeconomic policy making toward managing aggregate demand. If the Fed wants to reduce demand, it will raise prices by curtailing the growth of the supply of money and credit and increasing interest rates. Conversely, the Fed can lower interest rates and increase the supply of money in the system, therefore increasing demand. 1 In this case, consumers and businesses have more money to spend. But in certain cases, even the Fed can’t fuel demand. When unemployment is on the rise, people may still not be able to afford to spend or take on cheaper debt, even with low interest rates. Compete Risk Free with $100,000 in Virtual Cash Put your trading skills to the test with our FREE Stock Simulator. Compete with thousands of Investopedia traders and trade your way to the top! Submit trades in a virtual environment before you start risking your own money. Practice trading strategies so that when you're ready to enter the real market, you've had the practice you need. Try our Stock Simulator today >> The law of supply and demand is a theory that explains the interaction between the sellers of a resource and the buyers for that resource. The theory defines the relationship between the price of a given good or product and the willingness of people to either buy or sell it. Generally, as price increases, people are willing to supply more and demand less and vice versa when the price falls. The theory is based on two separate "laws," the law of demand and the law of supply. The two laws interact to determine the actual market price and volume of goods on the market. KEY TAKEAWAYS The law of demand says that at higher prices, buyers will demand less of an economic good. The law of supply says that at higher prices, sellers will supply more of an economic good. These two laws interact to determine the actual market prices and volume of goods that are traded on a market. Several independent factors can affect the shape of market supply and demand, influencing both the prices and quantities that we observe in markets. Understanding the Law of Supply and Demand The law of supply and demand, one of the most basic economic laws, ties into almost all economic principles somehow. In practice, people's willingness to supply and demand a good determines the market equilibrium price or the price where the quantity of the good that people are willing to supply equals the quantity that people demand. However, multiple factors can affect both supply and demand, causing them to increase or decrease in various ways. Demand The law of demand states that if all other factors remain equal, the higher the price of a good, the fewer people will demand that good. In other words, the higher the price, the lower the quantity demanded. The amount of a good that buyers purchase at a higher price is less because as the price of a good goes up, so does the opportunity cost of buying that good. As a result, people will naturally avoid buying a product that will force them to forgo the consumption of something else they value more. The chart below shows that the curve is a downward slope. Supply Like the law of demand, the law of supply demonstrates the quantities sold at a specific price. But unlike the law of demand, the supply relationship shows an upward slope. This means that the higher the price, the higher the quantity supplied. From the seller's perspective, each additional unit's opportunity cost tends to be higher and higher. Producers supply more at a higher price because the higher selling price justifies the higher opportunity cost of each additional unit sold. It is important for both supply and demand to understand that time is always a dimension on these charts. The quantity demanded or supplied, found along the horizontal axis, is always measured in units of the good over a given time interval. Longer or shorter time intervals can influence the shapes of both the supply and demand curves. Supply and Demand Curves At any given point in time, the supply of a good brought to market is fixed. In other words, the supply curve, in this case, is a vertical line, while the demand curve is always downward sloping due to the law of diminishing marginal utility. Sellers can charge no more than the market will bear based on consumer demand at that point in time. Over longer intervals of time, however, suppliers can increase or decrease the quantity they supply to the market based on the price they expect to charge. So over time, the supply curve slopes upward; the more suppliers expect to charge, the more they will be willing to produce and bring to market. For all periods, the demand curve slopes downward because of the law of diminishing marginal utility. The first unit of a good that any buyer demands will always be put to that buyer's highest valued use. For each additional unit, the buyer will use it (or plan to use it) for a successively lower-valued use. Shifts vs. Movement For economics, the "movements" and "shifts" in relation to the supply and demand curves represent very different market phenomena. A movement refers to a change along a curve. On the demand curve, a movement denotes a change in both price and quantity demanded from one point to another on the curve. The movement implies that the demand relationship remains consistent. Therefore, a movement along the demand curve will occur when the price of the good changes and the quantity demanded changes per the original demand relationship. In other words, a movement occurs when a change in the quantity demanded is caused only by a change in price and vice versa. Like a movement along the demand curve, the supply curve means that the supply relationship remains consistent. Therefore, a movement along the supply curve will occur when the price of the good changes and the quantity supplied changes by the original supply relationship. In other words, a movement occurs when a change in quantity supplied is caused only by a change in price and vice versa. Shifts Meanwhile, a shift in a demand or supply curve occurs when a good's quantity demanded or supplied changes even though the price remains the same. For instance, if the price for a bottle of beer was $2 and the quantity of beer demanded increased from Q1 to Q2, there would be a shift in the demand for beer. Shifts in the demand curve imply that the original demand relationship has changed, meaning that quantity demand is affected by a factor other than price. A change in the demand relationship would occur if, for instance, beer suddenly became the only type of alcohol available for consumption. Conversely, if the price for a bottle of beer was $2 and the quantity supplied decreased from Q1 to Q2, there would be a shift in the supply of beer. Like a shift in the demand curve, a shift in the supply curve implies that the original supply curve has changed, meaning that the quantity supplied is impacted by a factor other than price. A shift in the supply curve would occur if, for instance, a natural disaster caused a mass shortage of hops; beer manufacturers would be forced to supply less beer for the same price. Equilibrium Price Also called a market-clearing price, the equilibrium price is the price at which the producer can sell all the units he wants to produce, and the buyer can buy all the units he wants. With an upward-sloping supply curve and a downward-sloping demand curve, it is easy to visualize that the two will intersect at some point. At this point, the market price is sufficient to induce suppliers to bring to market the same quantity of goods that consumers will be willing to pay for at that price. Supply and demand are balanced or in equilibrium. The exact price and amount where this occurs depend on the shape and position of the respective supply and demand curves, each of which can be influenced by several factors. Factors Affecting Supply Supply is largely a function of production costs, including: Labor and materials (which reflect their opportunity costs of alternative uses to supply consumers with other goods) The physical technology available to combine inputs The number of sellers and their total productive capacity over the given time frame Taxes, regulations, or additional institutional costs of production Factors Affecting Demand Consumer preferences among different goods are the most important determinant of demand. The existence and prices of other consumer goods that are substitutes or complementary products can modify demand. Changes in conditions that influence consumer preferences can also be significant, such as seasonal changes or the effects of advertising. Changes in incomes can also be important in either increasing or decreasing the quantity demanded at any given price. Those interested in learning more about the law of supply and demand may want to consider enrolling in one of the best investing courses currently available. What Is a Simple Explanation of the Law of Supply and Demand? In essence, the Law of Supply and Demand describes a phenomenon familiar to all of us from our daily lives. It describes how, all else being equal, the price of a good tends to increase when the supply of that good decreases (making it rarer) or when the demand for that good increases (making the good more sought after). Conversely, it describes how goods will decline in price when they become more widely available (less rare) or less popular among consumers. This fundamental concept plays a vital role throughout modern economics. Why Is the Law of Supply and Demand Important? The Law of Supply and Demand is essential because it helps investors, entrepreneurs, and economists understand and predict market conditions. For example, a company launching a new product might deliberately try to raise the price of its product by increasing consumer demand through advertising. At the same time, they might try to further increase their price by deliberately restricting the number of units they sell to decrease supply. In this scenario, supply would be minimized while demand would be maximized, leading to a higher price. What Is an Example of the Law of Supply and Demand? To illustrate, let us continue with the above example of a company wishing to market a new product at the highest possible price. To obtain the highest profit margins likely, that same company would want to ensure that its production costs are as low as possible. To do so, it might secure bids from a large number of suppliers, asking each supplier to compete against one another to supply the lowest possible price for manufacturing the new product. In that scenario, the supply of manufacturers is being increased to decrease the cost (or “price”) of manufacturing the product. Compete Risk Free with $100,000 in Virtual Cash Put your trading skills to the test with our FREE Stock Simulator. Compete with thousands of Investopedia traders and trade your way to the top! Submit trades in a virtual environment before you start risking your own money. Practice trading strategies so that when you're ready to enter the real market, you've had the practice you need. Try our Stock Simulator today >> There are five determinants of demand. The most important is the price of the good or service itself. The second is the price of related products, whether they are substitutes or complementary. Circumstances drive the next three determinants. The first is consumer incomes or how much money they have to spend. The second is buyers' tastes or preferences in what they want to purchase. If they prefer electric vehicles to save on gasoline, then demand for Humvees will drop. The third is their expectations about whether the price will go up. If they are concerned about future inflation they will stock up now, thus driving current demand. Law of Demand The law of demand governs the relationship between the quantity demanded and the price. This economic principle describes something you already intuitively know. If the price increases, people buy less. The reverse is also true. If the price drops, people buy more. But price is not the only determining factor. The law of demand is only true if all other determinants don't change. In economics, this is called ceteris paribus. The law of demand formally states that, ceteris paribus, the quantity demanded for a good or service is inversely related to the price. Download 74.07 Kb. Do'stlaringiz bilan baham: 
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