Supply and Demand Essay

Where the price ceiling is below the market price, it leads to a shortage of supply or excess demand. This emanates from the fact that producers decline to produce more at the lower price, whereas consumer demand increases due to the lower price. It leads to a significant harm to the producers as there is a reduction of the number of organizations willing to take the set lower price and those that continue operating must take the lower price. A major advantage of price ceiling is that it limits the pricing system of suppliers with an aim of ensuring fair business practices (Econ Port Organization, 2011). This is especially important in periods where a nation is experiencing abnormal economic activities like in the case of natural disasters.

Where the price of a product or service with a substitute increases, consumers seek the substitute as an alternative. Lastly, elasticity of demand may help in explaining. If the elasticity of demand is elastic as evidenced in the current case, an increase in price has two inversely proportional effects. If price is increased, an elastic demand has the possibility of increasing the potential revenue and at the same time lowers the attendance. With an elastic demand, if the art museum lowers the price, the resulting percentage drop will lead to an increased percentage of the quantity sold, thus increasing the total revenue. On the other hand, low prices lead to an increase in demand because goods and services are more affordable and the consumers get more benefits that at least equal the cost.

Due to differences in consumer preferences, a decline in product price has a benefit worth the cost for vast consumers, which as a result increases demand. This is depicted by the fact that if the supply and demand quantities are plotted against price, the demand curve moves downwards as price increases whereas the supply curve moves upwards as price increases. The market equilibrium is achieved where the amount supplied equals the amount demanded and where the quantity is the same as equilibrium quantity, the price reflects the equilibrium price. Additionally, if there is a difference between the price and the equilibrium price, the law of interest and supply attests that the cost of any service/good must adjust until the supply is the same as the demand (Davis and Serrano, 2017).