The paper "Labor Supply and Labor Demand" is a wonderful example of an assignment on macro and microeconomics. The above supply table and graph could be used to make assumptions about the law of supply. The law of supply states that as the prices rise, the quantity supplied rises as well and as the price falls, the quantity supplied falls. This relationship is called the law of supply. The reason behind this positive relationship between the supply and price is because of the motivation of the supplier to sell more and more when the prices rise, in order to maximize his profit. Like the assumption used in the demand, analysis, we can also move from individual supply curve to market supply curve by adding the value of all individual supply curves.
We can now bring together the supply and demand on the same graph to see how the buying decisions of buyers and suppliers meet to bring about an equilibrium price and quantity and lead to a situation of equilibrium in the market. However, let’ s first tabulate the plans of buyers and suppliers in a table form to have a better understanding of the equilibrium situation. Price Quantity Supplied Quantity Demanded Condition in the market A reaction in the market 0 0 10 Shortage Queues, Increase in Price 5 5 5 Equilibrium No Reaction 10 10 0 Surplus Reduction in Prices The above table illustrates the different situations that may occur in a market and how these situations lead to a position of equilibrium in the market.
This equilibrium position can be represented in a diagram form as well: The above diagram clearly indicates the equilibrium position in the market, clearly identifying the equilibrium point, equilibrium quantity, and equilibrium price. At this point, the plan of buyers meets the plan of sellers and quantity is determined at 5 and price at $5 where there is no misbalance in the market- shortage or surplus and no pressure on price or quantity.
If, however, the price goes below $5, the quantity demanded will become greater than supply, and hence queues and price increase will occur until the market is back to equilibrium. Similarly, if the price is above $5, the quantity supplied will be greater than demanded and hence supplier will find large quantities of unsold goods.
They will be motivated to lower the price to get rid of unsold stock and the situation will come back to equilibrium again.
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