8/16/2023 0 Comments Consumer and poducer![]() ![]() ![]() Markets in which producers determine their own prices allow for equilibrium of supply and demand to exist, or at least be sought by those who produce goods. The supply and demand curve shown in Figure 1 portrays the quantity of a good produced and sold respectively at a particular price. Figure 1 demonstrates the supply and demand curve, with the equilibrium point illustrated where the lines intersect. If prices are too low, consumers may like it but suppliers will reduce the amount of goods produced, leaving some amount of demand unfulfilled (Ehrbar, 2008). If prices are above that optimal point, sales will decline as demand is reduced. In a market economy, the optimal point sought by those producing and consuming a good is when the amount of supply produced is balanced with the amount of demand for that particular good. After all, our own behavior at the grocery store, for instance, can change as prices of goods decline when items are on sale, or when prices rise due to things like a poor growing season or animal disease leading to a limitation in the amount of crops or meat produced (Henderson, 2008). This basic premise of supply and demand is widely accepted and easily recognized by economists and non-economists alike. Conversely the “law of demand” suggests the amount of demand rises as prices fall, and declines as prices rise (Ehrbar, 2008 Henderson, 2008). Simply put, the “law of supply” states that the quantity of a product supplied increases as prices rise, and declines as the price drops. The interaction of supply and demand defines basically every possible economic event. ![]()
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