ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Introduction. Price is dependent on the interaction between demand and supply components of a market. Demand and supply represent the willingness of consumers and producers to engage in buying and selling. An exchange of a product takes place when buyers and sellers can agree upon a price.

Detailed explanation-2: -The relationship between the supply and demand for a good (or service) and changes in price is called elasticity. Goods that are inelastic are relatively insensitive to changes in price, whereas elastic goods are very responsive to price. A classic example of an inelastic good (at least in the short term) is energy.

Detailed explanation-3: -Under perfect competition, equilibrium price is determined at the point of intersection of market demand and market supply.

Detailed explanation-4: -The equilibrium price is the price at which the quantity demanded equals the quantity supplied. It is determined by the intersection of the demand and supply curves. A surplus exists if the quantity of a good or service supplied exceeds the quantity demanded at the current price; it causes downward pressure on price.

Detailed explanation-5: -An increase in income leads to increased purchasing power and demand, whereas a fall in income leads to decreased purchasing power and demand. There is also a link between income and commodity quality. Quality items will see an increase in demand as income rises, whereas poorer goods would see a reduction in demand.