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Demand and Supply
Aahi Awasthee
WestCliff University
BUS 505: Managerial Economics
Professor Salami
July 5
th
, 2020
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Demand and Supply
Theory of demand and supply
The law of supply and demand is a theory that explains the interaction between the sellers
of a resource and the buyers for that resource. The theory defines what effect the relationship
between the availability of a particular product and the desire (or demand) for that product has on
its price.
Law of Demand vs. Law of Supply
The law of demand states that, if all other factors remain equal, the higher the price of a
good, the less people will demand that good. Whereas, the law of supply means that the higher the
price, the higher the quantity supplied.
In economics, there are mainly two types of goods viz Normal goods and Inferior goods.
And in the above example, the reason why the manager of the company would be worried is
because the dry goods sold by this company may be inferred as Inferior Goods. Inferior goods -
which are the opposite of normal goodsare anything a consumer would demand less of if they
had a higher level of real income. They may also be associated with those who typically fall into
a lower socio-economic class. It is important to note that by calling goods inferior, we do not imply
that they are of poor quality: the term is simply used to define products that consumers purchase
less of when their income rises and purchase more of when their incomes fall.
Therefore, if the income of the lowest income bracket were to increase by 10% that would
mean decrease in demand for the dry goods that G.R. Dry Foods has to offer.
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To explain this further please refer to the graph below
Graph a. Relationship between Normal goods and Inferior goods
As you can see in the graph above, when the user A was earning an income of $3,000 the
quantity demanded for the dry goods was 10,000 whereas as the income increased to $8,000 the
demand for the same product reduced to ~5000. Income is one of the major factors responsible for
shifting the demand curve.
References
Baye, M. R., & Prince, J. T. (2017). Managerial economics and business strategy (9
th
ed.).
McGraw-Hill Education
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Graph 1: https://xplaind.com/210486/normal-good-vs-inferior-good
Definition of Inferior goods: https://www.investopedia.com/terms/i/inferior-good.asp

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1 Demand and Supply Aahi Awasthee WestCliff University BUS 505: Managerial Economics Professor Salami July 5th, 2020 2 Demand and Supply Theory of demand and supply The law of supply and demand is a theory that explains the interaction between the sellers of a resource and the buyers for that resource. The theory defines what effect the relationship between the availability of a particular product and the desire (or demand) for that product has on its price. Law of Demand vs. Law of Supply The law of demand states that, if all other factors remain equal, the higher the price of a good, the less people will demand that good. Whereas, the law of supply means that the higher the price, the higher the quantity supplied. In economics, there are mainly two types of goods viz Normal goods and Inferior goods. And in the above example, the reason why the manager of the company would be worried is because the dry goods sold by this company may be inferred as Inferior Goods. Inferior goods which are the opposite of normal goods—are anything a consumer would demand less of if they had a higher level of real income. They may also be associated with those who typically fall into a lower socio-economic class. It is important to note that by calling goods inferior, we do not imply that they are of poor quality: the term is simply used to define products that consumers purchase less of when their income rises and purchase more of when their incomes fall. Therefore, if the income of the lowest income bracket were to increase by 10% that would mean decrease in demand for the dry goods that G.R. Dry Foods has to offer. 3 To explain this further please refer to the graph below Graph a. Relationship between Normal goods and Inferior goods As you can see in the graph above, when the user A was earning an income of $3,000 the quantity demanded for the dry goods was 10,000 whereas as the income increased to $8,000 the demand for the same product reduced to ~5000. Income is one of the major factors responsible for shifting the demand curve. References Baye, M. R., & Prince, J. T. (2017). Managerial economics and business strategy (9th ed.). McGraw-Hill Education 4 Graph 1: https://xplaind.com/210486/normal-good-vs-inferior-good Definition of Inferior goods: https://www.investopedia.com/terms/i/inferior-good.asp Name: Description: ...
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