Demand, Supply and Equilibrium in Microeconomics

Running head: MICROECONOMICS
Microeconomics
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1MICROECONOMICS
Table of Contents
Introduction................................................................................................................................2
Demand, supply and equilibrium...............................................................................................2
Summary of the article...............................................................................................................3
Economic analysis of the article................................................................................................5
Conclusion..................................................................................................................................7
References..................................................................................................................................9

2MICROECONOMICS
Introduction
Microeconomics refers to the study of economics that deals with behavior of
individual firms and household and resource allocation. It commonly applies to the market of
goods and services and addresses economics and individual issues. One of the fundamental
topics of microeconomics is “Demand, Supply and Equilibrium”. Understanding of this
fundamental topic helps to understand how market works (Cowell, 2018) The principle of
demand and supply gives idea regarding movement of market equilibrium and associated
price and quantity. The report evaluates two articles related to the chosen topic. The first
article discusses supply shortage of legal cannabis in Canada and its likely outcome. The
second article addresses issues related to demand and supply of rental housing market in
Canada. The main issues of the two articles are evaluated in light of economic concepts of
demand and supply and factors influencing demand, supply and prices in the two market.
Demand, supply and equilibrium
The term demand is used to identify the amounts of goods and services that people are
willing to purchase at a price given their ability to do so. The quantity demanded of a good
has an inverse association with price as indicated by law of demand (Friedman, 2017).
Demand curve of a good thus is given by a downward sloping curve. Supply of a good or
service on the other hand describes different quantities of goods and services that sellers are
willing to supply in the market at different price. Supplied quantity of a good is positively
related to its price as stated by the law of supply, Supply curve thus is shown by an upward
sloping curve. In a free market demand and supply work independently. Equilibrium in the
market is set where demand matches to the available supply. The price that equates demand
and supply in the market is termed as equilibrium price (Baumol & Blinder, 2015). Available
quantity at this price is known as equilibrium quantity. Price works as an invisible hand to

3MICROECONOMICS
maintain stability in the market. At any price above the equilibrium, there is an excess supply
in the market. This creates a downward pressure on price and moves price moves
equilibrium. At a price below the equilibrium, quantity demanded exceeds the quantity
supplied. To meet the supply shortage price moves up towards equilibrium. Factors causing a
change in demand and supply leads to a change in state of equilibrium position in the market
and associated price and quantity (Cowen & Tabarrok, 2015).
Figure 1: Demand, Supply and Equilibrium
(As created by author)
Summary of the article
“Canada-wide cannabis shortages could last years, producers warn”
The cannabis market of different provinces of Canada is now experiencing a supply
shortage which is likely to persist in upcoming years. These provinces include British
Columbia, Alberta, Manitoba, Quebec, Saskatchewan, New Brunswick and Nova Scotia. In