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Hi please help with these List the major determinants of demand, and explain how a change...

Hi please help with these

  1. List the major determinants of demand, and explain how a change in each will affect the demand curve.
  2. List the major determinants of supply, and explain how a change in each will affect the supply curve.
  3. Explain the concept of equilibrium price and quantity.
  4. What is productive and allocative efficiency, and explain how competitive markets achieve them.
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Answer #1

Determinants of demand Besides the own price of the commodity, there are other nonprice determinants. These include the income of the consumer, their tastes and preferences, price of goods and services that are substitutes or complements to the original commodity and buyers expectations. The latter includes expected future price of the commodity or the expected income in near future. In the first case of change in own price, when the price of a commodity rises, there is an upward movement along the same demand curve. The downward movement along the demand curve is experienced in case of a price fal. The second case belongs to a change in any nonprice factor such as, an change in income of the buyer. The price of the commodity is assumed to be unchanged, which implies that more or less units are demanded at each price. Thus, the demand curve does not show a movement but a shift to the left or right depending on the nature of change. For an increase in number of consumers, increase in income, higher expected price in future and expected income, increase in price of substitute and decrease in price of complement, there is an increase in demand shown by a rightward shift of the demand curve. Each time a factor is changed, others are kept unchanged.In the free market system, forces of demand and supply maximizes the total surplus which is the sum of consumer surplus and producer surplus. For the given firm, the price determined by the market is equal to the minimum of average total cost. This indicates that the production is done at the minimum efficient scale and therefore, long run equilibrium ensures productive efficiency. Simultaneously, the price is equal to the marginal cost indicating that long run equilibrium also establishes allocative efficiency. At this long run level of output, the sum of consumer surplus and producer surplus is maximized If the output is increased or decreased by one more unit, there will be a reduction in the efficiency because then the lowest minimum average total cost will not be achieved. Thus, in the long run, the maximum willingness to pay equals the minimum willingness to receive, which maximizes the net welfare of the society

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