The Experiment Setup and Economic Theory Assignment

The Experiment Setup and Economic Theory - Assignment Example Microeconomics theory puts into account the total of quantity demanded by the consumers and the supplied quantity by the producers. The aim of microeconomics is to analyze mechanisms of the market that put in place the relative prices amongst services and goods, and allocation of scarce resources amongst substitute uses. It also analyzes market failure. In a monopolistic competition, there are some assumptions that the producer has to make concerning the demand and supply as they assume there is a perfect competition in the market. This shows that there are many consumers and producers in the market as one does not require the entry and exit fee to qualify to be the member of that firm. In the monopolistic firm, the prices are controlled by the producer. That is why they are termed as the price controllers as they are the ones who determine the price of a given product. And since they make decisions themselves, they are the ones who determine the prices of the commodity that they sell to the consumers. When the prices are high, the demand goes down as the consumption of the commodity reduces. Due to higher prices, the consumers do not satisfy their needs and wants. As a result of low consumption, the supply of the product goes down in the market. On the other hand, when there are low prices in the market, the product demand increases as the consumers are able to purchase the commodity at a lower price, and due to high consumption rate, the supply also increases. In the first session, one is interested in determining the price of the commodity, thus known as price determination. When the producer lowers the price below the ones shown in the first session, the quantity of the commodity will increase as the demand is high. The result is low prices and low profits. And if the seller increases the price of a product, the demand for that product will decrease as the buyers will be unwilling to purchase the product, thus decreasing the quality of the commodity.  Ã‚