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Demand and Supply

The first thing to understand is that demand is not the same thing as desire, or need, or want. We are looking for the forces which determine price, and the strength of the desire for something will not, in itself, have any influ­ence on the price. Only when desire is supported by the ability and willingness to pay the price does it become an effective demand and has an influence in the market. Demand, in economics, means effective demand, and may be defined as 'the quantity of the commodity which will be demanded at any given price over some given period of time'. Any definition of demand must say something about the quantity, the price, and the time period.

For the great majority of goods and services, experience show that the quantity demanded will increase as the price falls. This particular characteristic of demand may be illus­trated by a table described as a demand schedule, or, as is more usual, by a demand curve, which is a graphical representation of the date in the demand schedule.

The demand curve shows the relationship between prices and the quantities demanded. The supply schedule and supply curve show the relationship between market prices and the quantities which suppliers are prepared to offer for sale. Supply is not the same thing as 'existing stock' or 'amount available'. We are only concerned here with the amounts actually brought to market and these amounts depend to a large extent on the ruling market price. If a farmer ploughs in his cabbages because he thinks the market price is too low-the cabbages were a part of the existing stock but they never become part of the current supply.

The basic law of supply says 'More will be supplied at a higher price than at lower price'. An increase in price usually means that production will become more profitable and we would expect existing producers to expand their outputs in response to rising prices. In addition, in the long run, an increase in price (and hence profits) would tend to encour­age new firms to enter the industry.

Вариант 6

Дата добавления: 2015-07-20