Supply and Demand Simulation

Supply and Demand Simulation

Introduction

Microeconomics, studies the behavior of individual economic units, such as individuals, families, businesses and markets in which they operate.. For this reason it is also often described as the science of allocating scarce resources among alternative ends. Microeconomic theory uses formal models that attempt to explain and predict, using simplifying assumptions, the behavior of consumers and producers. In general microeconomic analysis is associated with price theory and its derivatives (Blaug, 1997). It is considered that the largest contributor to microeconomic analysis has been Marshall.

Discussion

We all know, economists and others, that the equilibrium prices for each good and service are those that equate supply and demand for that good or service. If in a given moment in time the demand for mobile phones is greater than supply, then the prices tend to rise, which, by stimulating the production (supply) and reducing demand, will bring the mobile phone market in equilibrium: question will finally be equal to the supply.

Let us begin our discussion of demand by defining three concepts: demand (D), quantity demanded (Qd ), and the law of demand. Demand is defined as the amount of a product that buyers are willing and able to purchase at all prices. A consumer is said to demand a product if he or she is both willing and able to purchase a product. A consumer who is willing to purchase a product, but is unable to do so, is not considered to be part of the market demand because he or she will not actually purchase the product. Likewise, a consumer who is able but unwilling to buy a product is also not considered to be part of market demand. Quantity demanded is defined to be the amount of a product that buyers are willing and able to purchase at a specific price. To summarize, the difference between demand and quantity demanded for a product is that demand refers to the amount potential buyers are both willing and able to purchase at all prices, and quantity demanded refers to the amount potential buyers are willing and able to purchase at a specific price. Once these two terms are understood, it becomes possible to introduce the law of demand (Deaton & Muellbauer, 1998).

One of the most basic concepts in economics is the law of demand. The law of demand is simply an observation of a consumer's general response to changes in a product's price. As price decreases, consumers tend to be willing and able to purchase more of a product, and as price increases, consumers tend to be willing and able to purchase less of a product. To help visualize economic concepts, economists often try to illustrate the concepts using graphs. The law of demand is illustrated in Figure 7.1. The lines labeled D 1 and D 2 are referred to as demand curves. The lines are drawn here as linear functions to enhance the simplicity of the graph, but these lines could also be drawn as curved lines that ...