Microeconomic Concepts and Capitalism Assignment

Microeconomic Concepts and Capitalism - Assignment Example The Concept of demand states that the lower the price of a commodity the higher the demand for the same product and the higher the price of the product, the lower will be the demand for that product. Demand is important since it affects the price of products to a great level. This concept has made me realize how product prices are established in various markets. I notice that when there is high demand for a product in the market, the price of the product is bound to increase. Price elasticity of demand refers to a state where a rise in the price of a commodity leads to a greater demand for its close substitute and low demand for the complement of the same product. As a result, those venders selling the substitute commodities will register a rise in the sales volume and profit. This concept is important in that it reveals the relationship between products and their substitutes in terms of price and demand. The concept has helped me understand how substitute prices change relative to that of a particular product. The prices of similar products, hence, are somehow related and depend on one another It is a measure of the responsiveness to the change in the quantity supplied of a commodity to the changes in prices. In this case, an increase in the price of a commodity will lead to an increase in the supply of the same commodity, while a decrease in price will lead to a decrease in the quantity supplied. The concept is important given that it shows the relationship between supply and price of commodities. In the market, therefore, different products have a different price elasticity of supply as the supply side is subject to change in various markets.