Economics for a Sustainable World

Question: Explain about the market demand and supply and market efficiency. Answer: 1A With the change in the demand of a particular product (per unit), there is going to be a change in the equilibrium price and the quantity demanded in the similar direction. In illustrating the law of demand, it is observed that a decline in the quantity demanded would certainly cause a decline in the equilibrium price and quantity of a product (Arnold, 2001). On the other hand, an increase in the quantity demanded would increase the equilibrium price and quantity of a product. 1B A change in supply curve would cause in shift in the equilibrium price and output in the opposite directions, i.e. an increase in the supply will cause a deduction in the equilibrium price and quantity of goods supplied and vice versa (Ashenfelter, , 2006). Due to the increase in the supply, the firm is able to supply at an excess quantity at initial price of the product and surplus supply causes the price to get reduced and the demand increases and as the demand increases the firm is able to boost up its revenue and vice versa. 1C A price floor is regarded as economically significant, provided the former is greater than the free market equilibrium price. As a result, price floors may lead to excess supply of the product. A higher base price might lead to higher quantity supplied in the market (Baye, 2000). Thus that creates nominal market demand and hardly few people are willing to pay off higher price for the products. Thus the firm is said to be inefficient to participate in the market. References Arnold, R. (2001).Economics. Cincinnati, Ohio: South-Western College Pub. Ashenfelter, O., Layard, R., Card, D. (2006).Handbook of labor economics. Amsterdam: North-Holland. Baye, M. (2000).Managerial economics business strategy. Boston: Irwin/McGraw-Hill. Mason, R., Lind, D., Marchal, W. (2009).Statistical techniques in business and economics. Boston, Mass.: Irwin/McGraw Hill.