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Supply and demand (Equilibrium Price (Occurs when supply and demand are…
Supply and demand
Equilibrium Price
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A function of markets is to try reach an equilibrium price that balances the demand with the supply of goods and services
An equilibrium price is that at which a seller can sell all that he/she wants to and a purchaser can buy all that he/she demands
Sellers would naturally like to charge higher prices for gods and services, however even if there is no competition, consumers will demand less at higher prices
At the equilibrium price, the same will be supplied as demanded
If the equilibrium price is correct in a market, there will be enough of the items available to satisfy demand at that price as as buyers can be satisfied and all sellers will be able to dispose of their entire stocks of the items at the equilibrium price
The market price is where the equilibrium price equals the actual price due to temporary influences of the forces of supply and demand
When the conditions of supply and demand have settled down so that the rate at which the time is consumed is equal to the rate at which is produced, then a long period equilibrium price will be established and this is known as the normal price
Elasticity of demand
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Where a small change in price results in a large change in quantity demanded, then demand is said to be elastic
If a considerable change in price makes little difference to the quantity demanded, demand is considered to be inelastic
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Where a change in the price of an item brings about a corresponding change in the quantity demanded, the elasticity of demand is equal to unity
Elasticity is less than unity where the result in a change of price leads to a greater corresponding change in quantity bought
Elasticity is less than unity when an increase in price results in a total outlay greater than before
When elasticity is considered to be perfect, elasticity will equal infinity, when elasticity is perfect, elasticity will be equal to zero
The law of demand
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An exceptional demand curve is one that slopes upward form left to right, this reflects a situation where demand a commodity is greater at a higher price
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The law of supply
States that the quantity of goods supplied rises as the market price of those goods and services rises
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It is the interaction of supply and demand that will affect the price of something, such as share price
Demand means the quantity demanded at a particular price. As the demand for a particular share rises, then the price will rise due to the 'limit in supply' of shares available to trade
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There are laws of supply and demand and it is the interaction of these two laws which underpins virtually all economic events
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