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Trends in Consumption Pattern
Economics is a subdivision of social science. Its basic function is to study how individuals, households, firms and nations maximize their profits form limited resources and opportunities. It also studies about the distribution, production, profitability, demand and supply of goods and services (Dwivedi, 2005). Economics is thus a social science, which examines human conducts in relation to optimum allocation of limited resources to avail the predetermined target. The body of economics constitute of:
- Analytical tools and techniques.
- Laws and theories of economics.
Economics is related to the application of economic concept and economics to the problems of formulating rational decision making. The main branches of economics are as follows :( Mathur, 2003)
- Microeconomics and Macroeconomics.
- Positive economics and normative economics
Micro economics is the study of those economic variables, which are of individual nature. It is concerned with individual decision units like consumer households which are resource owners and business firms(owners of goods and services). It is the main branch of economics that studies how an individual unit or firm takes decisions to assign limited resources in the market place in order to capture a large market share (Mathur, 2003)
It analyzes how human behaviors and decisions affect the demand and supply for goods and services, which influence prices; and how prices, in turn, influence the demand and suply of goods and services.
Law of Supply
Supply is a schedule of the volume of goods that would be offered for sale at relevant prices at a period of time. It is the willingness of the supplier to sell his product at all possible prices. Law of supply establishes relationship between price and quantity of goods supplied. According to law of supply, supply of the commodity will increase with the increase in the price and decrease with the decrease in price (Siddiqui, 1990). It means price and supply of the commodity moves in the same direction. Law of supply will be effective only when the other determinants of supply remain constant.
Law of Demand
Demand is expression of the following:-
- Desire to acquire
- Willingness to pay
- Ability to pay
Law of demand tells us about the relationship between price and quantity demanded. According this law, there is an inverse relationship between price and demand of a commodity. It means that the demand for a commodity increases when its price decreases and falls when its price rises. This law states that other things or determinants of demand remain the same (Dwivedi, 2005).
Factors that affect supply and demand
There are number of factors that lead to changes in the demand and the supply.
Some of the factors that affect supply are:
- Cost of production
- Availability of other products
- Climatic changes, for example, the supply of agricultural products is largely dependant on climatic conditions
- Changes in government policies
The factors that lead to changes in demand are:
- Income of the consumer
- Price of the substitute product
- Price of complementary products
- Changes in policy
- Tastes and preferences of the consumer
- Existing wealth of the consumer
- Expectation regarding future price changes (Economics for Managers, 2004).
The products, which are mentioned in the article, are oil and gas. The oil and gas are the most usable products by each country in the present world. The consumers of oil and gas derive high amount of utility. There are number of areas where oil is used, especially as a fuel. The consumer feels highly satisfied with the use of the oil and gas. The only thing, which creates dissatisfaction in the mind set of the consumer, is the increasing price of the oil and gas. This is the age of advanced technology and the technology requires fuel to be operated. Oil and gas are used as an input material. Its utility can be seen with the help of the gap between demand and supply. In the future, the consumption and the utility of the oil will show an increasing trend (Kleinman, 2008).
In the global energy market, there is an imbalance between supply and demand of oil. The demand of oil per day is around 1.4 million barrels more than the supply. It affects the price of the oil, so there is a need to defeat increasing demand. Demand of oil in the US is falling, and surely there will be reduction in prices. But demand in china is rising due to wide difference between demand and supply.
Now, we know that the demand growth in the global world is volatile because consumers are moving up in the higher consumption level and demand for more comfort. An average American consumes approximately 25 barrels worth oil annually and the Japanese consumer approximately 17 barrels of oil annually. Earlier, the average consumption pattern of the Chinese people was about 1 barrel but now it is 2 barrels a year. The rise in per-capita income causes increase in the energy demand (Kleinman, 2008).
The supply of the oil is short on the global level. The oil resources are not able to fulfill the demand of the consumer market. There is a gap between the demand and the supply of the oil and gas. Most of the people say that Iran has stored the oil in tankers, which has led the lack of oil. Most of the working power plants have been cut down due to the fact that they were located on the earthquake areas. If we compare the demand and supply of the oil, the demand is stronger and the supply is comparatively weaker (Kleinman, 2008).
The oil prices have been showing an increasing trend in the global market. The prices of the oil and gas have been increasing due to the imbalance in the demand and supply. One of the main reasons for the continuous increase in the prices of oil is that the demand of the oil in the global market is 86.4 million barrel but the supply is only 85.0 million barrel. The price is increasing to kill the demand of the oil.
The price of the oil is not affected by the single player, trader, producer or the consumer. On May 29, 2008, the market of the oil was increased up to $5 a barrel. The oil price was low on June 5, 2008 by 10% due to the speculators. The strong demand of the oil is one of the factors, which has pushed up the price of the oil. In the last three years, the price of the oil has been increased more than $50 a barrel. There is a need to understand the trend of the price of the oil. The oil prices can further go higher in the future (Kleinman, 2008).
Dwivedi, D. N. (2005). Managerial Economics (6th ed.). New Delhi: Vikas Publishing House Pvt. Ltd.
Mathur, N. D. (2003). Business Economics, 2nd Edition. Jaipur: Shivam Book House Private Limited.
Siddiqui, S. A. (1990). Economics: National Income Accounting and Introductory Economics Theory. Delhi: Laxmi Publications (P) Ltd.
Economics for Managers. (2004). Hyderabad: ICFAI Center for Management Research.
Kleinman, (June 6, 2008). G. High Gas Prices: Manipulation or Supply and Demand. Retrieved June 30, 2008, from http://kciinvesting.com/articles/8911/1/High-Gas-Prices-Manipulation-or-Supply-and-Demand/Page1.html