A theory of price. Analysis of Markets. Simple Supply and Demand curves. Demand curve shifts. Supply curve shifts. Effects of being away from the Equilibrium Point. Vertical Supply Curve. Other market forms. Discrete Example. Application: Subsidy.
Contents Introduction Supply and demand Conclusion Literature Introduction In microeconomic < theory, the theory of supply and demand explains how the price and quantity of goods sold in markets < are determined. In general where goods are traded in a market, prices of goods tend to rise when the quantity demanded exceeds the quantity supplied at that price, leading to a shortage, and conversely that prices tend to fall when quantity supplied exceeds the quantity demanded. This causes the market to approach an equilibrium point at which quantity supplied is equal to the quantity demanded. Price is thus seen as a function of supply curves and demand curves. The theory of supply and demand is important in the functioning of a market economy < in that it explains the mechanism by which most resource allocation decisions are made. The theory of supply and demand is usually developed assuming that markets are perfectly competitive < This means that there are many small buyers and sellers, each of which is unable t
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