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Examining the relationship between price and quantity demanded is part of the study of economics. According to the textbook demand is the amount of goods or services that consumers are both willing and able to buy at each possible price during a specified time period with other things being constant. The law of demand indicates that quantity demand varies inversely with price and the slope of demand curve is downward and negative. In other word, when the price of a certain commodity goes up, people buy less of it and vice versa (Miller, 49). For example, when the price of six-pack of Pepsi is rise from $3 to $4, people will buy (or demand) less for Pepsi and the amount of sale will want down. On the other hand, supply is the amount of goods or services that producers are both willing and able to offer for sale at each possible price during a specified time period with other things being constant. The law of supply indicates that quantity supply usually directly related to price and the slope of supply curve is upward and positive. In other word, at the higher price, a certain commodity will gradually be supplied more than at lower price (Miller, 58). For example, at the rate of $5 for six-pack of Pepsi, the manufacturers would certainly be willing to supply a larger quantity than the rate of $3 as other things being unchanged because they will be more profitable. The extent to which demand changes with price is known as "price elasticity of demand" and determined by three major conditions; existence of substitutes, share of budget and time for adjustment (Miller, 422). We can differentiate “price elasticity of demand” into three different categories. They are elastic demand, unit elasticity of demand and inelastic demand. If t... ... middle of paper ... ...imes the number of units of gasoline purchased (which goes down very few) will certainly goes up. All in all, solid understanding of the Law of Demand, the Law of Supply and the Price Elasticity of Demand is important that they will provide economic understanding of the world around oneself. If a business firm understands those theories well, they will have more information to decide on output production and pricing. Even though in real life application, people rarely use the economics terms of supply, demand and elasticity, society is making choices for their benefits everyday base on economic principles. Works Cited Chen, Katie. "Shrinking Food Packages." - KULR-8 Television, Billings, MT. WorldNow and Cowles Montana Media., 7 May 2014. Web. 9 May 2014. Miller, Roger LeRoy. Economics Today: The Micro View. 16th ed. Boston: Addison-Wesley/Pearson, 2012. Print

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