Supply and demand: why markets tick

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Supply curve

The quantity of a commodity that is supplied in the market depends not only on the price obtainable for the commodity but also on potentially many other factors, such as the prices of substitute products, the production technology, and the availability và cost of labour and other factors of production. In basic economic analysis, analyzing supply involves looking at the relationship between various prices và the quantity potentially offered by producers at each price, again holding constant all other factors that could influence the price. Those price-quantity combinations may be plotted on a curve sầu, known as a supply curve sầu, with price represented on the vertical axis and quantity represented on the horizontal axis. A supply curve is usually upward-sloping, reflecting the willingness of producers lớn sell more of the commodity they produce in a market with higher prices. Any change in non-price factors would cause a shift in the supply curve sầu, whereas changes in the price of the commodity can be traced along a fixed supply curve sầu.

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As the price rises, the quantity offered usually increases, & the willingness of consumers to lớn buy a good normally declines, but those changes are not necessarily proportional. The measure of the responsiveness of supply và demvà to changes in price is called the price elastithành phố of supply or dem&, calculated as the ratio of the percentage change in quantity supplied or demanded lớn the percentage change in price. Thus, if the price of a commodity decreases by 10 percent and sales of the commodity consequently increase by trăng tròn percent, then the price elastiđô thị of demand for that commodity is said to lớn be 2.

The demvà for products that have sầu readily available substitutes is likely lớn be elastic, which means that it will be more responsive sầu lớn changes in the price of the hàng hóa. That is because consumers can easily replace the good with another if its price rises. The demand for a hàng hóa may be inelastic if there are no cthua substitutes và if expenditures on the product constitute only a small part of the consumer’s income. Firms faced with relatively inelastic demands for their products may increase their total revenue by raising prices; those facing elastic demands cannot.

Supply-and-demvà analysis may be applied lớn markets for final goods & services or khổng lồ markets for labour, capital, and other factors of production. It can be applied at the cấp độ of the firm or the industry or at the aggregate level for the entire economy.

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This article was most recently revised và updated by Adam Augustyn, Managing Editor, Reference Content.