Question

Question.Explain the laws of demand and supply, and identify factors that cause demand and supply to shift. Try these problems: 1, 3

Short answer

Answer:

The law of demand and supply is a set of rules that governs the supply and demand of goods and services. The former law implies an opposite correlation between demand and price charged. The latter implies a direct correlation between supply and price set.

Step-by-step solution

Step 1: Law of Demand and Supply 

Price and quantity demand fluctuate in different directions according to the rule of demand and supply. It means that when the price goes up, so does the quantity of demand, and vice versa.

Factors affecting demand:

Demand is affected/shifted by a variety of things: Demand is influenced by a variety of factors.

These are as follows:

1. Price: Price of a product decides its demand volume. Higher the price set, the lower would be the demand volume, and vice versa.
2. Your financial situation. When it rises, so does demand, and vice versa.
3. Credit facility: As loans become more affordable and credit facility expands, demand rises.
4. Technology: As technology advances, the number of substitute products available and the quality of those products improves, increasing demand.
5. Economic growth expectations in the future: optimistic views enhance demand, while pessimistic views reduce demand.

Factors affecting supply:

A number of factors have an impact on supply. The following are some of them:

1. Input costs: As input costs rise, supply falls, and vice versa.
2. Price level: As prices rise, supply rises in response, and vice versa.
3. Level of competition: As the level of competition increases, so does the number of alternative items and competitors on the market, resulting in a reduction in supply.
4. Taxation: When the government levies a tax, the supply of products and services is reduced, and vice versa.