The foci of the discussions that are presented in this paper are supply, demand, the interrelationship between supply and demand, and the role of price elasticity in the interrelationship between supply and demand.
Supply, Demand, the Interrelationship between Supply and Demand, and the Sources of Changes in Supply and Demand
Demand refers to the quantity of product that is needed or that is desired by consumers. The product may be a good or it may be a service. Consumers may be individuals, families, or organizations. Individual demand refers to the quantity of a product that is demanded by one individual, one family, or one organization. Market demand, or aggregate demand, is the quantity of a product that is demanded by all consumers. The level of demand for a product is a function of the interactions between consumer needs and desires and product price. The demand curve for a product reflects the aggregate product quantities that will be demanded by consumers at different price levels for the product (Mankiw, 2009).
Supply refers to the quantity of a product that producers are willing to offer for sale. The level of supply of a product is a function of producer capacity, product demand, and product price. The supply curve for a product reflects the aggregate product quantities that will be offered by producers at different price levels for the product (Mankiw, 2009).
The Supply and Demand Relationship
The equilibrium point between supply and demand is where a product demand curve intersects a product supply curve. This point is the product price level where the quantity of a product that is demanded by consumers is equal to the quantity of a product that producers will offer for sales at that price level. The law of supply and demand holds that, other factors remaining unchanged, product demand increases as product price falls, and product demand decreases as product price increases...