Analysis on the Demand and Supply on Economic Growth
The law of supply and demand is regarded as one of the most fundamental principles in economic theory. The law is often illustrated as the more supply is, the lower the price will tend to be or vice versa, and as the more demand is the higher the price will tend to become or vice versa (Henderson 2009). This essay is aim to discuss how the behavior of an individual decision-making unit is affected by the force of supply and demand and opportunity cost, and how do the individual decisions influence the firms` output.
2. How the behavior of an individual decision-making unit is affected by the force of supply and demand and opportunity cost?
2.1 Supply and Demand
The most common one is the demand of the market for products. It usually occurs that the price of wanted goods increases because of the supply shortage or personal intendant of buyers who suppose to store enough merchandise. This is known as demand-pull inflation, which sends a signal to manufacturers of the good that they can increase production by allocating more resources to producing the goods being demanded as opposed to other possible products to maximize their profits. Though the price of a product or service may not always be the only factor or the deciding factor, it is a key factor in the process of consumer decision-making (Henderson 2009). A principle in microeconomics assumes that on the condition that all other factors are equal, demand for the product or service would like to decline as the price of that product or service goes up. Conversely, demand will go up as the price declines. For example, consumer demand for both cherry pies and apple pies will depend on the price and size relationship, as cherry pies are cheaper and bigger than apple pies. If the apple pie baker innovates to make apple pies competitive enough with cherry pies of others, he would set these pies with the same money or even lower one. As a...