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Summary Price formation essay
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Discuss in detail, using diagrams, how the forces of demand and supplydetermine the equilibrium price in the product market.
Product markets are composed of the businesses attempting to sell goods and services and
the households / consumers who might buy them. The prices and quantities are based on
the interaction that occurs between them.
A demand for a product is the result of decisions made by consumers about which
needs and wants to satisfy
LAW OF DEMAND
• A demand curve indicates the quantity of a product that is demanded at different prices
• It slopes down from left to right. This indicates that the demand curve has a negative
slope.
• It is the result of the inverse relationship between the price of a product and the quantity
demanded of the product
SUPPLY
Supply is the quantity of a product that individual producers plan to sell at a certain price.
Law of Supply
• The law of supply states that as the price of the product increases, the quantity supplied of
the product increases
• There is a direct relationship between the quantity and price.
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