Motivation behind the law of demand and supply
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Law of Demand and Supply
What is the motivation behind each of the laws?
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Solution Summary
The expert reacts to the law of demand and supply. The motivation behind each of the laws are determined.
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Motivation behind the law of demand and supply:
When people's actions are based on self interest, people respond to incentives, that is, to costs and benefits. When the costs of an activity are raised or the benefits reduced, people do less of the activity. Economists have found that they can use this simple idea of action based on costs and benefits to construct a model (or theory) that explains how many markets work. Thus the law of supply and demand is perhaps the most basic of the models economists use to explain the world around us. A market exists when buyers and sellers interact to exchange products. Supply and demand analysis describes the nature of of interactions. That is , it shows What determines the amount of a product that people are willing and ready to buy during some period of time . Economists answer such questions by examining the costs and benefits of buying the product. When any of the costs or benefits changes, the amount of the product that people will buy should also change.
The benefits a person gets from a product depend on his goals. These goals are referred to in many ways in discussions of demand. The words "tastes," "wants," "needs," "preferences," and "usefulness" all refer to goals. When people's goals change, the amount of benefit they get from the good changes, and this will cause them to change the amount of the good they want to buy.
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