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1、五、InvestmentTools:Economics:MicroeconomicAnalysis1.A:PreliminaryReading:Supply,Demand,andtheMarketProcessa:Explainthelawsofsupplyanddemand.Allelseheldconstant,ahigherpricewillincreasethesupplyofgoodsproducedandofferedforsale.Existingproducerswillproducemore,andnewsupplierswi
2、llenterthemarket.Thelawofsupplystatesthatthereisadirectrelationshipbetweenthepriceofagoodandtheamountofthatgoodthatwillbesuppliedinthemarketplace.People’sdesireforgoodsexceedsthepurchasingpoweroftheirincomes.Thisforcesthemtomakechoices.Peoplewillchoosethosealternativesthaten
3、hancetheirwelfaremostrelativetotheircost.Anincreaseinthecostofanitemrelativetoalternativeconsumptionchoicesreducesthelikelihoodofpurchasingthatitem.Higherpricesreducethedemandforanitemandlowerpricesraisethedemandforanitem.Thisiscalledthelawofdemand.Theavailabilityofsubstitut
4、esisthemainreasonthatconsumersbuylessofaproductasitspriceincreases.Substitutesaregoodsthatperformsimilarfunctions.Thelawofdemandstatesthatthereisaninverserelationshipbetweenthepriceofagoodandtheamountbuyersarewillingtopurchase.Marketdemandschedule:Thedemandcurvewillslopedown
5、wardtotheright,indicatingthatthenumberofunitsdemandedwillincreaseasthepricedeclines.Somegoodsaremuchmoreresponsivetochangesinpricethanothers.Thegreaterthenumberofviablesubstitutesforagoodthemoreresponsivedemandistoprice.Wheninterpretingthedemandcurve,rememberthatwehaveassume
6、dthatfactorsotherthanprice,suchasconsumerincome,havenotchangedsignificantlyb:Discusshowmarketpricesrespondtochangesinsupplyanddemand.Amarketistheenvironmentthatencompassesthetradingarrangementsofbuyersandsellersthatunderlietheforcesofsupplyanddemand.Equilibriumoccurswhenthec
7、onflictingforcescreatingsupplyanddemandareinbalance.Intheabsenceofshiftsinsupplyanddemandcurves,ifthepriceissohighthatsupplyexceedsdemand,somebusinesseswilldecreasetheirpricestoselltheirexcessinventorywhileotherselecttoreduceproduction.Theresultisareductioninbothpriceandsupp
8、lyuntilthemarketisinequilibrium.Conversely,ifdemandexceedssupply,thepriceof
