Question

Supply and Demand

1. Explain the difference between an “increase in demand” and an “increase in quantity demanded” (including a discussion of what could cause them to happen).

2. Explain how a free market automatically eliminates a market shortage in the short-run (the price mechanism).

Answer 1

1) Demand refers to the willingness and ability buy the goods and service. On the other hand, quantity demand refers to the amount of an economic good and service desired by the consumer at the fixed or particular price.

2) Free market economy where demand and supply determine the price of the goods in above case market shortage it implies that demand for particular goods is greater than supply and it results in increasing price of the goods and it induce suppliers to supply more goods for higher price thus shortage of supply goods wiped out new equilibrium price established.