Explain how supply and demand works

Economics >Describe how the law of supply and demand works. Use at least one example in your answer.

Describe how the law of supply and demand works. Use at least one example in your answer.
Subject
Economics

Question Description
1. Describe how the law of supply and demand works. Use at least one example in your answer.

The law of supply and demand has an indirect relationship. They set the prices in the market. To explain how this whole thing works, lets take a certain good for a example. When this good becomes somehow affordable and popular, many consumers buy it and the demand for that product increases. However when the supply of the product can't catch up with the demand, shortage occurs and this increases the price of the product. On the other hand, when there is more supply of that good, but the there isn't much demand for that good in the market, the price of the good decreases. This is the law of supply and demand. When there is supply but not much demand prices fall, but if there is more demand than supply prices increase.

(4 points)

2. Define optimal efficiency. How is optimal efficiency achieved in production?

It is the state of minimizing waste and making the best of the resources you have. It is the ratio of benefit and cost. It is achieved by reaching the optimal ratio between the cost of allocating resources and the benefit gained at the end.

(4 points)

3. Give one example of a fungible good and one example of a non-fungible good. What is the difference between these two types of goods, and why is it important?

One fungible good is petroleum. A non-fungible good can be clothes or shoes. The main difference is that fungible goods don't make much a difference from where you buy them and are the same for everyone. Non-fungible goods on the other hand are different for different consumers. For clothes and shoes for example, people have different sizes so it isn't the same for everyone and a cloth that fitted one customer might not fit another one. The different is important because for fungible products consumers can get them anywhere, they can change shops or gas stations and still get the same product. This poses great challenge for producers that produce fungible products because there is great competition in that sector. They have to overcome the other competitors and create a brand for their product in order to survive.