Economic Analysis: Demand, Supply, and Market Equilibrium

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Construction Analysis

Contents
Introduction......................................................................................................................................3
Economy..........................................................................................................................................4
Economic System............................................................................................................................5
Principles of Economics..................................................................................................................6
Types of economics.........................................................................................................................8
Internal and external factors affecting the economy........................................................................8
Law of demand and Supply.............................................................................................................9
Equilibrium......................................................................................................................................9
Demand Side Analysis.....................................................................................................................9
Supply Side analysis......................................................................................................................10
Conclusion.....................................................................................................................................12
References......................................................................................................................................13

Introduction
The aim of this essay is to give relevant knowledge about the economy, the principle of the
economy, its two major subjects: - the micro-economy and macroeconomy as well as discuss the
factors affecting demand and supply whether it’s internal or external. The essay revolves around
four folds. Economy and its various principles, Definition of the laws of supply and demand,
demand-side analysis, Supply-side analysis. The economy is associated with the word “to
manage” in an area of production, distribution, utilization, consumption, and trade of the
resources. It is a social territory and the study of the economy is known as "Economics", let's
understand this term briefly in the underlying essay.

Economy
The economy is the network of the entire set of inter-related production, distribution and
consumption of good and services. It is a structure which determines how money is made and
used within the local, regional and national (Phuc and Duc, 2019) community. It is the watchful
use of money connected with things like how much goods and resources are produced, in
regulating how much deficient resources are allocated and how much value folks can pay on
these productions. Factors affecting the economy are consumer spending, balance trade, GDP,
exchange rate, interest rate, unemployment, government debt, Gross domestic products, etc.
The study of the economy is known as “Economics”, which is Social-Science domain concerned
with how people of a country allocate the resources to meet their wants and need and to optimize
these resources to maximize the outputs. A successful economy is especially comprehended with
the efficiency of the production, allocation of the resources using strategies (Jain, et.al., 2019)
and architecture to deliver policies to maximize potency. The economy is broadly classified in
four stages- Primary stage-extraction of raw materials and natural resources, Secondary stage-
transformation of raw items into goods, Tertiary stages–delivering of products to consumers,
Quaternary stage-research and development for future productions.

Economic System
The guideline of the system is that the universe possesses constraint methods with an individual
having boundless needs, thus the idea of efficiency, profitability and product ability is held
principal in financial aspects. Increasing productivity utilization of assets could prompt higher
expectations of everyday comfort.
Every economic system possesses basic question of scarce resources and answers to this will
attempt to solve three main questions and inter-related problems. What merchandise and goods
should be produced and in how much quantity, who will produce it and who will get an
advantage and how the total product will be distributed (Davidson, 2019) among the society. The
economic system runs with the interaction of planning and decision making with and four
mechanisms used are Socialist Planned Economy, Command Capitalism, Market Capitalism, and
Market Socialism. Mixed, Planned and Market economy is the resource allocation methodology
used in the economic system.

Principles of Economics
1. People face trade-offs
The equality and efficiency are the examples of the trade-off.
1.1: Equality: This consists of the fair means which distribute the economic prosperity among
the members of the society.
1.2: Efficiency: To get more resources (Phuc and Duc, 2019) out of rare resources.
2. The cost of something is what you give up to get it.
This includes the opportunity cost which has to use the resources which are available.
3. Rational people think at the margin.
This includes the marginal changes which have a small adjustment in the small plans. The firms
or might be individuals have better decisions on the benefits of the marginal.
4. People respond to incentives.
This means to give rewards to the person (Jain, et.al., 2019) who has changed their behavior for
the organization. This includes the decisions and the benefits and the cost.
5. Trades can make everyone better off.
This does not mean one person will lose and others will win this basically means if A don’t have
dress, home but spending all money on foods.
6. Markets are usually a good way to organize economic activity
The markets which acquire the goods and the services have the multitude of the households and
there are the decentralized decisions of the resources.
7. Governments can sometimes improve market outcomes.
The involvement of the government is for the efficiency and equality. The policy of the
government includes externality, market failure, and market power.

8. A country's standard of living depends on its ability to produce goods and services.
The standard of the countries in terms of the living way is quite high with compare to other
countries. It includes productivity which means a high standard.
9. Prices rise when the government prints too much money.
The economy is the factor which increases the overall levels in the prices.
10. Society faces a short-run trade-off between Inflation and unemployment.
In the business cycle, there is a short term trade comes in between the unemployment and the
inflation of the business cycle.

Types of economics
Economics can be divided into two segments-
Macroeconomic- it is the study of economics which focus on an aggregate of the total economy
of the country. It is the main tools are aggregate demand and supply. Its center problem is
determined by the level of income and unemployment. It is examined through GDP, inflation,
national income, rate of growth, level (Jain, et.al., 2019) of prices. It takes the top-down
approach into the evaluation. Example of macroeconomics is Nation income, National price,
poverty, aggregate supply and demand, unemployment, etc.
Microeconomics- which centers on the individual customers, and ranges between how
individual trade with one another and how the price affect the supply and demand of the good. Its
central problem is price determination and allocation of resources. It is based on unrealistic
assumptions. It deals with individual income, individual price, and individual output. It takes a
bottom-up approach in the evaluation of the good and supply.
Importance of Microeconomics-It is used in demand forecasting, the functioning of the economy,
formulation of different policies, Minimization (Phuc and Duc, 2019) of cost, Study of National
income, Inflation and Deflation, Foreign trade and exchange rate determination, understanding
consumer's behavior and in determining resources allocation and in the maximization of social
welfare.
Internal and external factors affecting the economy
Internal factors are the factors which occur within the company and can be controlled by the
company. If these factors are examined carefully than they can turn into a strength. Internal
factors are Human resource, Capital resource, Operational efficiency, Organization efficiency,
Infrastructure, Innovation, ethics.
External factors are the factors which occur outside the company and can't be controlled by the
company but taking these factors into (Davidson, 2019) consideration into account can help the
company to adjust with the outside environment and make more adaptable plans. Factors are an
economic situation, law, political, technological, stakeholders, environment, competitors and
customer demands.

Law of demand and Supply
Demand and Supply is an economics methodology used to understand the run of the economic
system. It is a theory which is developed by Antonie Augustin Cournot in 1838. In 1868 Alfred
Marshall tried to use this theory to explain competitive economics and predictions about the
price and quantity of a well-produced and (Gölgeci, et.al. 2019) supplied. The quantity of the
product present in the market is known as supply and the amount which people want to buy is the
demand. Consider a certain situation, if there is more demand of tomatoes in the market but a
supply of tomatoes are less, then the price increase but on another hand, if everyone just start
selling tomatoes and customers are not willing to buy it, means its demand is less, then the price
of tomatoes will decrease. And these how fluctuation in the economy occur due to demand and
supply.
Equilibrium
It is the cross point in the economy where demand and supply become equal. The market
equilibrium is referred to as the economic situation in which price lead to equality between the
quantity required and quantity offered. The price is called an equilibrium price and the quantity
is called equilibrium. In simple words, it can be explained as if there are buyers in the markets
then there are sellers also at a (Davis, 2019) certain point. Change in demand and supply as a
shift in demand and supply will attain a new equilibrium point. Different cases of equilibrium
are- when demand increases, supply increases, demand decreases, supply decreases, demand
increases and supply increases, demand decreases and supply decreases, demand increases and
supply decreases, demand decreases, and supply increases. Graphically we can explain it as the
demand-supply curve.
Demand Side Analysis
Demand is the economic principle which works on the consumer desire and the consumers want
to pay a price for that product.This represents the need for the good and the service which help to
satisfy the demand of the product in the market which can have the sale of the purchased. The
product will be purchased by the people (Gölgeci, et.al. 2019) with the demand for the good
qualities and the reasonable price. Basically, this refers to how much that is what the quantity of

the product service is demanded by the buyers. This shows the relationship between the quantity
and the price.
The quantity of the demands depends on the prices which have the commodity and the potential
and many more factors. Apart from the price all the factors are constant in the demands curve.
The curve of the demands is plotted between the price and (Phuc and Duc, 2019) the quantity.
The curve or the result of the price and the quantity is downwards in the slope. If there is a
change in any factors except the price the whole curve will be shifted. The product will be
purchased by the people with the demand for the good qualities and the reasonable price
The demands curve wants the purchaser to be a good competitor that means the competitor
should always to satisfy with the price of the product. It includes tastes and preferences, number
of potential consumers, consumer’s expectations about future and incomes. The demand has the
structure, volume and the level of consumptions which have one period to next periods. There
are dynamic characters, need income and prices. The price is inversely proportional to the
demand that means (Davidson, 2019) if price increases the demand decreases and if the price
decreases the demand increases. The product will be purchased by the people with the demand
for the good qualities and the reasonable price. The price might not be affordable for the buyer
then they may not buy this and the product will have less demand because the price is higher.The
demands curve may shift the right with any of the reason:
 Advertising: product advertising may increase the sell.
 Quality: The quality of the product may be very good and liked by the customers.
 There may be a fall in demand:
 This may occur due to the income of the buyer.
Supply Side analysis
The Quantity or the amount of good present in the market at any given point of time is referred
to as "Supply ". It is a quantity that producers plan to sell in the market. Supply and price are
closely related and changes if there is a difference in another. Consider a scenario, as demand
increases and prices, are also high (Davis, 2019) which means that supply is a shortage on
another if demand is higher and prices are also low then supply is abundant.

Factors affecting the supply:
 Price of the economy –Higher the price of a good, larger is the supply of good and vice-
versa.
 Technological changes- Innovation and invention of new technologies will reduce the
cost of production and increase productivity and supply.
 Input prices- A decrease in prices will lead to greater supply and vice-versa.
 The goal of the firm- If the goal of the company is to maximize the profit, then there will
be more quantity with higher prices but if it is to maximize sale more will be supplied at
same prices.
 Government policies- Imposition of taxes reduces the supply while subsidiary increases
the supply in the market.
 A number of firms- Larger the number of firms then there will be greater the supply and
vice-versa.

Conclusion
The economy of the nation is determined by the production, distribution, trade of resources and
applying strategy to improve the economy. Allocation of these resources among the society will
determine its efficient run of the economic system. The economics is broadly categorized on an
individual level and national level as microeconomics and macroeconomics. Demand, supply,
and price are the inter-related words which are linked to one another. When demand and supply
become equal it is known as Equilibrium. For greater efficiency and productivity of products
various internal and external factors should be taken into consideration like environment, Law,
price, environment, infrastructure, ethics, innovation, technology.