Instructions The law of demand states that as prices increase the quantity deman
ID: 2439163 • Letter: I
Question
Instructions
The law of demand states that as prices increase the quantity demanded decreases. The law of supply states that as prices increase the quantity supplied increase. Using these two laws please answer the following questions:
Explain how changes in prices result in a downwards sloping demand.
Explain how changes in prices result in an upward sloping supply.
What will happen when consumer demand equals producer supply?
Make certain that you include in your explanation the concept of market equilibrium.
Answer each of these 3 questions with at least 3 well developed paragraphs.
Explanation / Answer
Answer : According to "the law of demand", there is an inverse relationship between price and quantity demanded. It means that if price rise then quantity demand decrease and if price fall then quantity demand increase. A downward sloping demand curve shows that if price rise then quantity demand decrease and if price fall then quantity demand increase. This means that the downward sloping demand curve fulfils the condition of demand law.
According to "the law of supply", if price rise then quantity supply increase and if price fall then quantity supply decrease. This means that for supply law there is a positive relationship between price and quantity supply. An upward sloping supply curve shows that if price rise then quantity supply increase and if price fall then quantity supply decrease. It means here that the upward sloping supply curve fulfils the condition of supply law.
We know that at market equilibrium condition, demand is equal to supply. Hence, if consumer demand is equal to producer surplus then there occurs market equilibrium condition.