BU204: Macroeconomics

Economics
Tutor: None Selected Time limit: 1 Day

Why supply and demand drives the market economy? Provide an example of the role of supply and demand in business decision making.

Jun 27th, 2015

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Demand

The law of demand states that, all other factors being equal, demand will be reduced as the price of a product is raised. It falls to the business owner to find the pricing sweet spot that will capture as much of a profit as possible without causing demand to retract. When the ultimate goal is to be profitable, a close and continual analysis of the supply and demand of every product line is essential to staying competitive in the market.

Supply

The supply side of the theory refers to how much of a product a business owner can supply to buyers and at what price. There's no justification for pricing an item artificially low if he doesn't have the manufacturing output to keep up with a spike in demand of people who want to get it at the low price. The exception is if his tactic is simply designed to draw attention to his business, hoping to make enough of a splash that sellers will return for more of the product at a higher price later on.


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Jun 27th, 2015

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