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Economics I have chosen those three topics for: my short report: - Law of demand - Law of supply - Law of demand and supply Law of demand In economics, the law of demand is an economic law that states that consumers buy more of a good when its price decreases and less when its price increases. Mathematical expression of law of demand Qx = f(Px) - Qx is the quantity demanded of x goods - f is the function of independent variables contained within the parenthesis - Px is the price of x goods. Let's consider an example If the price of pizza rose to $15 per piece, you would buy less pizza. If the price of pizza fell to $0.15 per piece, you would buy more. Because the quantity demanded falls as the price rises and rises as the price falls, we say that the quantity demanded is negatively related to the price. Chart Law of supply In economics, the law of supply is the tendency of suppliers to offer more of a good at a higher price. Mathematical expression of law of supply QxS = Φ (Px Tech, Si, Fn, X,........) - Qxs = Quantity supplied of commodity x by the producers. - Φ = Function of. - Px = Price of commodity x. - Tech = Technology. - S = Supplies of inputs. - F = Features of nature. - X = Taxes/Subsidies. Let's consider an example The price of pasta is one determinant of the quantity supplied. When the price of pasta is high, selling pizza is profitable, and so the quantity supplied is large. As a seller of pasta, you work long hours, buy many pasta machines, and hire many workers. By contrast, when the price of pasta is low, your business is less profitable, and so you will produce less pasta. At an even lower price, you may choose to go out of business altogether, and your quantity supplied falls to zero. Because the quantity supplied rises as the price rises and falls as the price falls,we say that the quantity supplied is positively related to the price of the good. Chart Law of demand and supply Supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers (at current price) will equal the quantity supplied by producers (at current price), resulting in an economic equilibrium of price and quantity. 4 types of laws of demand and supply - If demand increases and supply remains unchanged, then it leads to higher equilibrium price and quantity. - If demand decreases and supply remains unchanged, then it leads to lower equilibrium price and quantity. - If supply increases and demand remains unchanged, then it leads to lower equilibrium price and higher quantity. - If supply decreases and demand remains unchanged, then it leads to higher price and lower quantity. Let's consider an example Imagine that a special edition CD of your favorite band is released for $20. Because the record company's previous analysis showed that consumers will not demand CDs at a price higher than $20, only ten CDs were released because the opportunity cost is too high for suppliers to produce more. If, however, the ten CDs are demanded by 20 people, the price will subsequently rise because, according to the demand relationship, as demand increases, so does the price. Consequently, the rise in price should prompt more CDs to be supplied as the supply relationship shows that the higher the price, the higher the quantity supplied. If, however, there are 30 CDs produced and demand is still at 20, the price will not be pushed up because the supply more than accommodates demand. In fact after the 20 consumers have been satisfied with their CD purchases, the price of the leftover CDs may drop as CD producers attempt to sell the remaining ten CDs. The lower price will then make the CD more available to people who had previously decided that the opportunity cost of buying the CD at $20 was too high. Chart The end