Principles of Macroeconomics

Posted: October 17th, 2013

Principles of Macroeconomics

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Principles of Macroeconomics

In the market, demand and supply of a commodity plays a big role in shaping its performance. The term demand is used in economics to mean the quantity of goods demanded of a commodity at a given price in a certain time. It means the amount of goods buyers are willing to buy at a given price considering all factors such as tastes of customers and the supply remain constant (Arnold, 2008).

The law of demand states that when prices go up, demand goes down, while demand will go up when price goes down. This is to mean that demand is inversely related to price, making the demand curve a downward slope showing quantity demand reducing while price increases. When price goes up, considering that all other factors are held constant, people will reduce the amount they use for that good, since very few may be willing to part with more money for the same product. However, when the prices go down, many people can buy more of the product using the same money they used before when the price was up. When the price is high, there opportunity cost is also high, and consumers have to consider what to forego in order to buy the good. Therefore, people are forced to avoid the product since it will make them part with another good. Rather, they prefer buying at lower prices since they will not be forgoing other products (Carbaugh, 2010.

I noticed the law at work where customers reduced their purchases of certain fruits after their price had gone up due to increased prices of production in a grocery shop. Despite bringing in the same supply of fruits at the grocer shop, customer bought less of the fruit each day.

References

Arnold, R.A. (2008). Economics. New York, NY: Cengage Learning.

Carbaugh, R.J. (2010). Contemporary Economics: An Applications Approach. New York, NY: M.E. Sharpe.