Supply and Demand

Supply Curve, Demand Curve, and Equilibrium Point

This is a typical Supply vs. Demand graph as used in microeconomic theory. The total Quantity of a good that all corporations in a perfectly competitive market produce lies on the X-axis. The Price of the product is on the Y-axis.

As prices for a good decrease, customers are willing to buy more of the good. This is represented by the green Demand Curve. As prices for a good increase, producers are willing and able to produce more of the good. This is represented by the purple Supply Curve. The red dot where the two curves intersect is the Equilibrium Point, which gives the quantity of the good that will be produced and sold, and the good’s market sales price.

When a monopoly exists on a certain good, the Supply Curve will be artificially higher and possibly steeper than where it would be in perfect competition, especially in cases where there aren’t easily substitutable or comparable goods being offered in another market and/or when the good being offered has very low elasticity of demand (a fancy technical way of saying the price can increase tremendously and people would still demand the good at an equal level because it’s essential, e.g. medical care). The Demand Curve may also become nearly vertical in a monopolistic market, especially if the good has low price elasticity.

For this reason, monopolies (whether they be private or public entities) are bad for society and result in a huge net loss of efficiency. We typically see this in modern America with gas prices, healthcare and medical expenses, and broadband/phone/cable media providers, which are all near-monopolistic markets (oligopolies) and all have moderately low to very low price elasticity of demand.

Solutions? OPEC should  disband and the American government should reconsider its support for Obamacare. And digital media providers shouldn’t be permitted to own the cables, lines, wires, etc, used to push their services on people.

• Posted in: aEconomics ♦ Capitalism ♦ Efficiency ♦ Markets ♦ Microneconomics ♦ Perfect Competition ♦ Price Elasticity ♦ USA