Write a report that answers questions that explore economic analysis Term Paper

Write a report that answers questions that explore economic analysis and modern problems and the economic way of thinking - Term Paper Example It means the amount of maximum money one can charge for providing a product or service. The price, at which the demand of a product in the market equals its supply, is called an Equilibrium Price. Excess demand or excess supply makes Disequilibrium. By putting a Price Ceiling below the Equilibrium Price creates Disequilibrium which will make the demand in excess of supply as is shown in the graph below:- When the government put price ceiling on Cable TV below the current equilibrium price, the demand for Cable TV will increase. During this time if a new service is introduced, which will cost cheaper to the operator, will be readily accepted due to excess demand. This action will lead not only to increase in sales but also in revenues and profits. Perfectly competitive market is the situation where all the factors except demand and supply that affect market price are equal. In this situation, demand of goods and services reduces with the increase in price and demand increases with the reduction in price. This is called Law of Demand as is shown in the graph below. When the demand for the product falls, the prices in the market will start to come down. In the short run, profits of the company will fall and in the long run the number of firms will decrease due to reducing profits. When the demand for the product rises, the prices in the market will shoot up and go high. In the short run, profits of the company will increase and in the long run the number of firms will increase. New firms will be added to produce more products to meet the increased demand. Some long-run average cost curves are steeper on the downward side than others. This happens to the largest firms who tend to have cost advantage. It indicates that the industry is tending to become a monopoly, and hence is called a natural monopoly. Natural monopolies tend to exist in industries with high capital costs in relation to variable costs, such as