Microeconomics Assignment: Supply Curve, Elasticity and Equilibrium

This microeconomics assignment delves into fundamental economic principles, providing a comprehensive analysis of supply and demand dynamics. The assignment begins by explaining the upward slope of the supply curve, illustrating the positive relationship between price and quantity supplied. It then explores market equilibrium, demonstrating how the intersection of supply and demand curves determines the equilibrium price and quantity. The assignment further examines the concept of price elasticity of demand, differentiating between elastic and inelastic goods and their responses to price changes. Through figures and clear explanations, the assignment provides a solid understanding of these core microeconomic concepts.

Running head: MICROECONOMICS
Microeconomics
Name of the Student
Name of the University
Author Note

1MICROECONOMICS
Table of Contents
Answer 1: Logics behind upward slope of the supply curves and shifts in supply curve. .2
Answer 2: Determination of market equilibrium.......................................................................3
Answer 3: The concept of price elasticity of demand..............................................................4
References.....................................................................................................................................5

2MICROECONOMICS
Answer 1: Logics behind upward slope of the supply curves and shifts in supply
curve
Figure 1: Upward slopping supply curve
Source: (Created by the author)
The supply curve acts as a graphical representation, reflecting the nature of
associate between price and quantity of a product that a producer is able to supply. In
economics, price and supply are positively associated. The quantity of supply increases
in relation to the increase in the price (Gavazza 2016). Therefore, this results in the
upward sloping supply curve. In figure1, the quantity of supply is measured along with
the horizontal axis and the corresponding product price is labeled along the vertical
axis. The upward movement in the supply curve ensures that increase in price will
intensify the quantity of supply.

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Figure 2: Shift in the supply curve
Source: (Created by the author)
The figure 2 explains that shifts in the supply curve changes both the price and
quantity of the product supplied. The nature of impact can be analyzed through the
direction of the movement of the supply curve. The supplied quantity is mentioned on
the horizontal axis, whereas, price is measured along the perpendicular axis. The
rightward movement of the supply curve increase both the price and quantity supplied of
the commodity (Tarasova and Tarasov 2016). In contrast, the leftward shift affirms the
contraction in the supply curve, resulting in that both price and supplied quantity decline.
Answer 2: Determination of market equilibrium
Figure 3: Market equilibrium

4MICROECONOMICS
Source: (Created by the author)
Referring to figure 3, this paper explains at which level the quantity of supply and
demand get equal. The intersection of both the supply and demand curve gives the
market equilibrium level of price and quantity. Market equilibrium is such a level where,
quantity of supplied is equivalent to the quantity of commodity pursued by the
consumers. The quantity of the product is labeled on the horizontal axis and price on
the perpendicular axis. The intersection point of the supply and demand curve is treated
as the market equilibrium level in the terms of both the consumers and producers
(Guren, Krishnamurthy and McQuade 2018). In case of any divergent from this
intersection point, the market will no longer will be stable. The surplus in demand
intensifies the product price. The price will be continuing to increase unless and until
meeting the equilibrium level. At this certain position, the entire market supply gets
cleared by the market demand. Market is unable to sustain at any position except this
equilibrium level. Market faces either surplus in demand or quantity if it diverges from
the equilibrium position. The economy always strives to obtain a stable situation by
producing equal amount of product that are sought by the buyers of the commodity
(Wang and Tian 2015). However, the equilibrium can be a dynamic in nature. The
market can reach new equilibrium level as a consequence of shift in both the supply and
demand curves.
Answer 3: The concept of price elasticity of demand
In economics, price elasticity of demand measures the responsiveness of the
quantity of demand in response to the change in price of the good. In this context, some
goods are considered as elastic and inelastic goods (Miller and Alberini 2016). In case
of elastic goods, the negligible change in price gives a significant change in the product
demand. In contrast, the demand of inelastic goods does not get hampered due to the
change in the price. The range of price elasticity of demand varies from zero to infinity.
The perfectly elastic of demand is valued as one, whereas, perfectly elastic demand is
equal to zero. Further, perfectly elastic demand stands for infinity (Soderbery 2015).

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References
Gavazza, A., 2016. An empirical equilibrium model of a decentralized asset
market. Econometrica, 84(5), pp.1755-1798.
Guren, A.M., Krishnamurthy, A. and McQuade, T.J., 2018. Mortgage design in an
equilibrium model of the housing market (No. w24446). National Bureau of Economic
Research.
Miller, M. and Alberini, A., 2016. Sensitivity of price elasticity of demand to aggregation,
unobserved heterogeneity, price trends, and price endogeneity: Evidence from US
Data. Energy Policy, 97, pp.235-249.
Soderbery, A., 2015. Estimating import supply and demand elasticities: Analysis and
implications. Journal of International Economics, 96(1), pp.1-17.
Tarasova, V.V. and Tarasov, V.E., 2016. Elasticity for economic processes with
memory: Fractional differential calculus approach. Fractional Differential Calculus, 6(2),
pp.219-232.
Wang, M. and Tian, L., 2015. Regulating effect of the energy market—Theoretical and
empirical analysis based on a novel energy prices–energy supply–economic growth
dynamic system. Applied Energy, 155, pp.526-546.