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Supply and demand importance in the economy
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Demand and supply are tools used in the market to control the quantity produced by the manufacturer and the price of the product in the market. Economic forces try to stabilize the market through maintaining equilibrium. Various factors affect demand and supply of products in the market. They include price of the product, cost of production, natural condition, technology, transport conditions, the price of related goods, and government policies. The essay focuses on the major factors that affect the demand and supply of goods and services in the economy.
Essay Background
Economic growth and development depends on the revenue a nation is making per annum. Therefore, factors affecting the market operations are considered to control the economy. The following are major determiners of demand and supply in the market.
When the price of a product is high, the producers are motivated to produce more products because the revenue is determined by both the price and quantity sold. A high price in the market attracts a high level of supply. The large supply of the products affects the market greatly. The large production increases flooding aspect of the products in the market. Therefore, available products create a large pool of choice for the buyer (Deltas, 2008).
Over time, the price starts falling because of flooding of the market. In the long-run, few producers are left in the market because of poor sales. Market forces that control the equilibrium of the market also control changes in supply and demand. Equilibrium is a focal point where the quantity supplied equals the quantity demanded. The surplus in quantity demanded or supplied creates a gap in the market, thus, making the forces of the market work on shifting the market into an equilibrium
In economics, particularly microeconomics, demand and supply are defined as, “an economic model of price determination in a market” (Ronald 2010). The price of petrol in Australia is rising, but the demand remains the same, due to the fact that fuel is a necessity. As price rises to higher levels, demand would continue to increase, even if the supply may fall. Singapore is identified as a primary supplier ...
.... Supply and demand are not a constant, but an ever-changing model. As the supply and demand curves changed and shifted, Goodlife adapted prices and quantity to match. This scenario is easily adapted to many different aspects of supply and demand. Prices are constantly changing on the products, services bought every day, and supply and demand drove those prices.
As shown above, crisis increases demand for the product leading to a shortage. Supply does not change. Equilibrium price now shifts to the right and increases. The market is now ready and willing to pay for the product or service at a higher price. Upon seeing long of people waiting for the product, sellers either hike the price or bring in more supplies if it were possible. If more suppliers are brought, equilibrium price goes back to normal. If supply cannot be increased, sellers increase the price of the product or service.
Economic events are largely governed by the interaction of supply and demand. The law of supply states that with ‘all else being equal’ (ceteris paribus), as market price of a good or service increases/decreases so will an increase/decrease in quantity supplied. In turn, the law of demand states as market price of a good or service increases/decreases ceteris paribus, the quantity demanded will increase/decrease accordingly. The Australian avocado industry is an indicative example of microeconomics - the study of individual consumer or business decision making and spending behaviour in relation to the allocation of a limited resource and the correlation of supply and demand in determining
Segmentation, targeting and positioning are the fundament of modern marketing (Proctor, 2002, p. 188, as cited in Harris and Schaefer, 2015).
Supply and demand will continue to be affected by numerous factors including population growth and the aging of the nation’s population, overall
Growth: If the product succeeds, sales will grow. Prices could still be high, but with increased competition prices will drop. The producer still advertise at a high level to fight off competition. Product starts to move into profitability.
In this report, I will be distinguishing Demand and Quantity Demanded by stating the differences between both terminologies. By referring to the textbook which we are using throughout our course plus resources from the internet, I have been able to collect some information about the definitions of demand and quantity demanded. The factors which affect the movement along the curve and shifting of the curve have been stated in the following pages in this report. Demand and Quantity Demanded are different in terminologies and also literally. The demand and quantity demanded curve has differences and it can be seen in the figures which I had pasted below.
In the automobile industry, there are factors that cause a shift in the supply and price elasticity of the supply and demand. These factors can cause the supply demand to reduce or raise the demand for the automobiles. One factor to consider is if the price of steel rises. Automobile manufacturers will then produce fewer automobiles at all different price levels and the supply curve will then shift. Another factor to consider is if automobile workers decide to go on strike for higher wages. The company will be forced to pay more for labor to build the same number of automobiles. The supply of these automobiles will decrease. Lastly, another factor that can curve a shift in the supply curve could be if the government imposes a new tax on car manufacturers. In all of those cases, the supply curve will move because the quantity supplied is lower at all price levels.
These are the most relevant because the economy affects the prices you charge and finances could limit the amount of products you can sell or bring into the company to sell to the customers. The infrastructure is important because customers need to feel safe to want to buy products from your store and if they dont, they will lose revenue. The trends that are out in society will lead to higher profits in one area so they need to ensure they have more products in this category and still supply what you need to for everything else in the store. Lastly, is the customer base and if you know who you are trying to reach, then you will be successful and have a long lasting company at the end of the
The market price of a good is determined by both the supply and demand for it. In the world today supply and demand is perhaps one of the most fundamental principles that exists for economics and the backbone of a market economy. Supply is represented by how much the market can offer. The quantity supplied refers to the amount of a certain good that producers are willing to supply for a certain demand price. What determines this interconnection is how much of a good or service is supplied to the market or otherwise known as the supply relationship or supply schedule which is graphically represented by the supply curve. In demand the schedule is depicted graphically as the demand curve which represents the amount of goods that buyers are willing and able to purchase at various prices, assuming all other non-price factors remain the same. The demand curve is almost always represented as downwards-sloping, meaning that as price decreases, consumers will buy more of the good. Just as the supply curves reflect marginal cost curves, demand curves can be described as marginal utility curves. The main determinants of individual demand are the price of the good, level of income, personal tastes, the population, government policies, the price of substitute goods, and the price of complementary goods.
A change in quantity supplied is just a movement from one point to another in the supply curve. In opposite, the cause of a change in supply is a change in one the determinants of supply that shifts the curve either to the left or the right. These determinants are the resource prices, technology, taxes and subsidies, producer expectations, and number of sellers. An equilibrium price is required to produce an equilibrium quantity and a price below that amount is referred as quantity supplied of zero no firms that are entering that particular business. If the coefficient of price is greater than zero, as the price of the output goes up, firms wants to produce more of that output. As the price of the output goes up it becomes more appealing for the firms to shift resources into the production of that output. Therefore, the slope of a supply curve is the change in price divided by the change in quantity. The constant in this equation is something less (negative number always) than zero because it requires strictly a positive...
There are four main factors influence the demand of cars. Firstly, the price of cars will affect the demand of cars. Secondly, the citizens’ income has the effect for the demand of cars. Thirdly, the government’s macroeconomic control policies will also effect the demand. Finally, the price of gasoline will affect the demand.
At prices higher than the equilibrium price the quantity supplied will be greater than the quantity demanded and the excess supply would oblige sellers to lower their prices in order to dispose of their output. For example, if price is 40p supply would exceed demand by 110. This situation, illustrated in Figure 11.2, where supply exceeds demand and there is downward pressure on price is sometimes described as a buyers’ market.
...n the companies will have to decrease the price otherwise the product will not be sold at higher prices and the revenue would not be as large as companies would like to.