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When Supply Meets Demand

“Teach a parrot the terms ‘supply and demand’ and you’ve got an economist.”

Thomas Carlyle

MM212-section xx

John Smith

Month Day, Year

One of the key concepts in the development of a business model is the price at which supply is equal to demand. The point at which demand is equal to supply is called “equilibrium.”

When we are producing and selling a product, it is important to know the ideal price we should charge so that the supply we provide will be in balance with the demand of the public.

The price at which this occurs is determined by two related concepts: The Law of Supply, and the Law of Demand.

The Law of Supply states that as the price of a good rises, its quantity supplied will rise, and vice versa.

The Law of Demand states that as the price of a good rises, its quantity demanded will fall, and vice versa.

Example Problem:

Suppose a family wants to sell cupcakes to raise money. Knowing that, as the price increases the demand for the cupcake falls, and that increasing prices motivates them to make more cupcakes, there will be a point where the supply and demand meet one another.

Assume that at a given price x, in dollars, an individual customer will be willing to purchase a particular quantity, y, of cupcakes.

If we graph the two related concepts, supply and demand, on one plane, with price being on the horizontal axis and the quantity of cupcakes on the vertical axis, we can visualize the situation.

The price at which supply and demand are equal can be found by graphing the supply and demand curves on the same plane. We can see that the intersection appears to be at the point (4,5), which tells us that at a price of $4 per cupcake, the public will demand 5 cupcakes per sale, and we will provide 5 cupcakes per sale, and the situation will be “in balance.”

Resources

Toby & Slater. (2010). College Algebra. Prentice Hall.

Yeager, Tim. (1996-2007) OnLineTexts.com,...