Principles of Economics

PRINCIPLES OF ECONOMICS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
a) Use of supply and demand framework to find the impact on equilibrium price of product....3
b) How gross domestic product is calculated using expenditure method ..................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................9

INTRODUCTION
Economics is related to the science which describes certain factors that help to determine
the production, distribution and consumption of goods. The science of economics depends upon
some principles such as demand and supply (Monga, 2015). The present report is based on
supply and demand framework as well as it also explains equilibrium price and quantity of
product on a large increase in cost of production. Apart from this, method of measuring rate of
inflation in UK has also been elaborated.
a) Use of supply and demand framework to find the impact on equilibrium price of product
Demand refers to the willingness of people for purchasing products and services on a
certain price from the market. On contrary to this, supply refers to the capacity of market to offer
specific amount of services and products. The connection which exists between price and
quantity is known as the demand relationship (Onodipe, Ayadi and Marquez, 2016). A minor
change in demand can make a huge impact on the supply chain of products in market and little
alteration in supply can make high impact on the need of a product.
Demand framework of a product or service:
It is related with the willingness of people to buy some goods and services. It is having
major impact on the equilibrium price of a product or service. Change in demand curve can
affect the total equilibrium point of the market. Apart from that, decrease in requirement can
reduce the equilibrium price and quantity of goods as well.
Shift in demand curve:
Shift in demand refers to more or less requirement of any product or service on a fixed
price. This will affect the price and quantity of a product. For example, it is assumed that
increase in need of a product will make the prices to shift upward and decrease in the demand
will shift the price downward (Mallik and Shankar, 2016). Due to shift in price, equilibrium
point of product will get changed because the purchasing power of customers will be decreased.

If the curve above shows that demand curve is shifting towards right side, it states that
there is increase in the need of product. Through increase in the requirement of product,
equilibrium price of product will also get increased. However, on the other hand, if demand
curve shifts to the left side then it shows that there is decrease in the demand of product. Due to
decrease in this, equilibrium price of product will also get lower.
Supply framework of product or service:
Supply framework is related to the number of services which are available in market. If
the supply of products are different from demand of services then equilibrium price of market
will also get changed. Overall, change in supply can make the equilibrium price and output to
change in opposite directions.
Shift in supply curve:
Illustration 1: Shift in demand curve
(Source: Shift in demand curve, 2016)