In this report concept of demand and supply are covered. In order to understand their impact on price of the product demand and supply curve equilibrium diagram is considered. This diagram is analyzed from various angels. On other hand, in the report consumer price index is discussed and ways that are adopted in order to formulate and calculate the CPI are discussed in detail. At the end of the report, important points that are considered while calculating index value are also described in detail.
(1) Demand and supply
In order to predict changes in price of the product concept of demand and supply is used by the common people and companies as well as economists. In respect to this concept of equilibrium in demand and supply is used by the firms. According to this concept there must be equal demand and supply in the market. If this will happen in the market then there will be stability in the market price of the specific product. If this will happen then economy will remain stable and it will grow at fast pace without any hindrance. When a number of consumers increase in the market then demand for products also increase in the market. Thus, it becomes necessary to increase supply according to traction in demand that is observed in the market. Sometimes it happens that demand increases but supply does not increase and if it increases then small positive percentage change happens on it (Cusack, Iversen and Rehm, 2006). Due to this reason gap between demand and supply comes in existence. Due to high demand and less supply price of products elevated in the country. Thus, people are forced to pay more for buying a specific quantity of a product then they pay earlier. In order to understand this thing concept of equilibrium of demand and supply is explanation