Essay --

A market is a process of buyers and sellers exchanging good and services. Buyer is a group that determines the demand side of the market, whether it is consumers purchasing goods or firm purchasing inputs, while seller is a group that determines the supply side of the market, whether it is firms or companies selling their goods or resources owners selling their inputs. So, the market can be an interaction of buyers and sellers that determine market prices and output through the forces of supply and demand. DEMAND The definition of the demand is the amount of goods that consumers are willing and able to buy at a particular price. According to law of demand, there is an inverse relationship between price of goods and quantity demanded of goods and services. In a better way of explanation, when price of goods and services increase, the quantity demanded for foods and services will be decrease, vice versa. There are some reasons that show that why there is an inverse or negative relationship between price and quantity demanded. Firstly, since everyone likes to save money and buy cheap goods, so, consumers will only buy more goods and services at lower prices than higher prices, vice versa. Next, another reasons for negative relationship is diminishing marginal utility, which means, in a given time period, a buyer will feel less satisfaction from each successive unit consumed so consumers will only buy added units if the price was reduced. Lastly, there are the substitution and income effects of a price change. For the substitution effect, it states that an increase in the price of goods will encourage customers to buy alternatives goods, for example, when the price of meat increases, the quantity demanded for meat will be decrease as ... ... the indirect business tax increase, people will invest less and lead the aggregate demand to be decrease, ideally to a long-run, full –employment level of RGDP. This results a lower price level and full employment output; a new short and long-run equilibrium. After government had lower the government spending, increase the taxes and lower the transfer payment, the aggregate demand will be decreasing. Then with the help of multiplier, the aggregate demand curve shifts to the left even further. LRAS PRICE LEVEL SRAS Multiplier effect RGDPNR In a nutshell, when there is no more shortage or surplus problem, quantity demand is equal to quantity supply; there will be market equilibrium and after government had applied the expansionary fiscal policy for recession and contractionary fiscal policy for inflation, the economy problems will be solved.