Market demand is best defined as each consumer’s demand for a particular product, or each firm’s demand for a particular factor. The law of demand specifies that ‘the amount demanded varies inversely with price’. The following diagram can best demonstrate this. The table shows the maximum rate of purchase. That is, where the price is $40, consumers will buy 200 units and no more. Price $ Quantity Demanded 20 240 40 200 60 160 80 120 100 80 120 40 The demand curve can be used to give …showed first 75 words of 999 total…

…showed last 75 words of 999 total…demand at the previous equilibrium price. The price will be forced up causing an expansion in supply until the new equilibrium is reached at P1. An increase in demand raises both equilibrium price and quantity. A decrease in demand creates excess in supply and the previous equilibrium price (P1). The price will be forced down causing a contraction in supply until equilibrium is reached at e. As demand falls, so will equilibrium price and quantity.