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    Supply and Demand's Significance in Micro/Macro Economics

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    Describe the significance of supply and demand
    * To a Small business owner
    * To the executive management of a large bank
    * To state and federal legislators and elected leaders.

    How are supply and demand viewed differently fromt he macroeconomic viewpoint as opposed to the microeconomic viewpoint?

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    Solution Preview

    First we define what supply and demand is.

    Supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, price will function to equalize the quantity demanded by consumers, and the quantity supplied by producers, resulting in an economic equilibrium . Generally, when demand exceeds supply prices of a particular item or service are generally higher and when supply exceeds demand, prices of a particular item or service are lower. (definition from wikipedia)

    Now that the definition is clear, we look at supply and demand for each of the three parties.

    Small business owner

    In economics, we say that small business owners are price takers. This means that they have to accept the market price. Consider this example, if a ...