2006-10-17 05:56:13 · 5 answers · asked by green_womble 1 in Business & Finance ➔ Other - Business & Finance
demand and supply
2006-10-17 06:03:40 · answer #1 · answered by Anonymous · 0⤊ 0⤋
As noted before here, it's supply and demand forces acting in an open market to determine price.
You can think of demand as a force tending to increase the price of a good, and of supply as a force tending to reduce the price.
When the two forces balance one another, the price will niether rise nor fall, but will be stable. This leads one to think of the stable or natural price in a particular market being set at an "equilibrium" price.
Take a look at basic supply and demand curves; equilibrium exists when the price is just high enough so that the quantity supplied just equals the quantity demanded. If we superimpose the demand curve and the supply curve in the same diagram, you can visualize this "equilibrium" price. That's the price at which the two curves cross. The corresponding quantity is the quantity that would be traded in a market equilibrium.
2006-10-17 07:52:28 · answer #2 · answered by mjmelich 2 · 0⤊ 0⤋
By "scarce at some level" it just means not lying around all over the place. There's just about as much sand in the world as anyone could want, but I live a long way from the sea so if i need some I go to B&Q. It's not very expensive though, and if it was more people would drive backwards and forwards from the coast to london to sell it.
At opposite ends of the scale, diamonds have virtually no use, but without air you would die in a few minutes. But because since air is pretty much everywhere (for now) it's also free (again for now). But getting hold of a diamond yourself is extremely difficult, so people who want them have to pay a small fortune for a diamond mine to do the work for them.
Would you pay for something that was just lying around everywhere?
2006-10-17 06:09:41 · answer #3 · answered by wimbledon andy 3 · 0⤊ 0⤋
Not quite true - I can put a price on polluted ground water - and that doesn't mean it has value or that it is scarce. If an item sells in an arms length transaction between a willing buyer and a willing seller that is an indication that it has some scarcity or else the buyer wouldn't bother paying for the utem.
2006-10-17 06:05:13 · answer #4 · answered by Clockwork Grape 3 · 0⤊ 0⤋
For a constant demand curve, as quantity increases, price decreases. If quantity is more or less infinite, price is zero. Example: air is free.
This is theory though, it isn't always completely true in practice.
2006-10-17 06:22:44 · answer #5 · answered by Barkus109 2 · 0⤊ 0⤋