Question

describe two of the crucial assumption made in the model of supply and demand, as discussed in your reader. what is your view of the supply and demand model?

Answer 1

Assumptions made in the supply and demand model.

Demand model-

1.Price of other goods(substitutes and complementary)remains unchanged,income remains unchanged,tastes and preferences remain unchanged.

2.The good is a normal good.(negative price effect)

Supply model-

1.Technology remains unchanged,income of other goods remain unchanged.

2.No tax is imposed on the supply.

The supply and the demand model is a very simple model which helps to determine the price and quantity of goods,but these assumptions make the model less realistic.