The Connection Between Demand And Supply Economics Essay

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Prices are resolute in the market during the interaction of buyers (demanders) and sellers (suppliers).if buyers want to buy more of the good at lesser prices, a lesser amount of it at upper prices; and sellers wish to sell more of the product at higher prices and less of it at lower prices. How does a market treat with these opposing preferences?

Marketing is a belief that leads to the process by which organizations, groups and individuals achieve what they need and want by identifying value, providing , communicating and delivering it to others. The centre concepts of marketing are customers� needs, wants and values, products, exchange, communications and relationships. Marketing is strategically concerned with the path and reach of the long term activities performed by the organization to gain a competitive benefit. The organization applies its resources within a changing environment to satisfy customer needs while meeting stakeholder outlook.

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Demand and supply is possibly one of the most primary concepts of economics and it is the backbone of a market economy. Demand is how much desire consumers have for a product or service. Supply is how much of a product or service is available to them. When demand is great and supply is less the price of a product or service increases. When demand is low and supply is great, the price of a product or service decreases. The outcome on price is the quantification of supply and demand. Demand in many instances is determined by disposable income and free time.

For example: The Sony Playstation 2 demand was so high that stores ran out of them. But that didn't stop shoppers from buying them. Lots of people sold them over the Internet for hundreds of dollars and people paid it. They paid it because they wanted it and there was a limited supply.

Another example is cricket player MS Dhoni. He gets paid 1.5 million dollar a year because there were not many good player / captains for IPL.

if you trade collectable cards, you know that in order to get a uncommon card, you are most likely going to have to trade more than one card to get that uncommon card, because they are tough to find.

All of these are examples of supply and demand. When demand is high and the supply is low the price will go up. This is one of the principles that our market is based on.

LAW OF DEMAND AND DEMAND CURVE

The relationship between price and the amount of a product that people want to buy is what economists call the �demand curve�. This relationship is opposite or indirect because as price gets upper, people want less of a particular product. This opposite relationship is about always found in studies of particular products, and it�s very extensive occasion has given it a special name: the� law of demand�. The word "law" in this case does not refer to a bill that the government has passed but to an experimental regularity.1

There are various ways to put into words the relationship between price and the quantity that people will buy one can say that quantity demanded is a function of price, with other factors assumed constant.

A more basic way to take into custody is the relationship is in the form of a table. The numbers in the table below are what one expects in a demand curve, as the price of computer goes up, the quantity people are willing to buy decreases. And if the price of computer comes down then the quantity people are willing to buy increases.

If one of the factors being held constant becomes unstuck, changes, and then is held constant again, the relationship between price and quantity will change

(A computer is an imaginary product that some economist invented when he could not think of a real product to use in an example.)

A Demand Curve

Price of

computer No. of computer

People Wants to Buy

$100.00 100

$200.00 90

$300.00 70

$400.00 40

The same information can also be present on a graph, where it will look like the graph below.

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A movement along the Demand curve:-

Movement along a demand curve is the change in demand due to change in price causes the quantity of a product in the demanded marketplace. The below given graphical presentation of figure how prices and quantity changes along the demand curve.

Let�s consider p1 as $ 500 and p2 as $ 400 prices of a computer in a market and q1 as 10 and q2 as 20 is quantity of computer. When the prices of computer increases from $ 400 to $ 500 then the quantity demanded decreased from 20 computers to 10 computers.

Shift in the demand curve:-

A shift in the demand curve can occur because of a change in the other variable of the main product and income of buyers, a change in the price of other goods, or a change in tastes for the product.

1. CHANGE IN CONSUMER INCOME:-

The previous figure (2) shows an example of the shift in the demand curve, an increase in the income of the consumer the shift in the demand curve is towards right and decrease in the consumer income the demand curve shifts towards left, this is because the customers demand for the goods and service is forced by their incomes.

The demand for good may also be affected by changes in the incomes of buyers, as incomes rise the demand for a good will typically increase at all prices and the demand curve will shift, as in Figure 2. When incomes fall, the demand for a good will decrease at all prices and the demand curve will shift right, as in Figure 2.

http://www.cliffsnotes.com/study_guide/Demand.topicArticleId-9789,articleId-9728.html#ixzz0klhA4Wkh

The estimate monthly income in USA was $ 2100 in 2002 and later on it raised to $ 2600 in 2004 the income level of the consumer increases rapidly it resulted to increase purchasing power and increase computer sales.

The monthly estimate income of a person in USA was $ 3200 in 2005 and in 2008 when the US economy entered in the recession the monthly income fall to $ 2800 this resulted fall in sales of computer as the buyers was less in numbers.This resulted fall in computer prices hugely from $ 600 to $ 300

Price ( 00s ) initial quantity demanded new quantity demanded

$600 10 45

$500 20 50

$400 30 65

$300 40 70

$200 50 80

Shift in demand curve of computers after income increased

2. CHANGE IN POPULATION:-

The increase in the population shifts the demand curve towards the right. For instance now days more and more school are making laptops and pc compulsory for student as their part of the course however the demand for pc�s increased in 2 intakes and it shift it to right but afterwards the the sales decreases as there was no buyer in odd season to buy pc�s then it shift it to left .

(D1 to D2)

3. CHANGE IN THE PRICE OF OTHER GOODS:-

If the price of a complementary good increases then the demand for the goods will fall. This will result in a leftward shift in the demand curve of any complementary good (D1 to D2). However, if the price of substitute good increases, then the demand for the other good would increase as consumers switch their consumption patterns (D1 to D2)

Example: - If the Microsoft increases the prices of their windows versions software then the price of pc will fall down. Demand curve of the main product shifts to its left.

If SONY increases the prices of laptops then the demand curve of ACER laptop will shift to its right. If the prices of ACER decreases then the demand curve of SONY shift its to left.

4. Consumer preference towards computers:-

This is used primarily to mean an choice that has the greatest anticipated value among a number of options. When the first choice of a consumer for any particular product increases the demand curve shifts towards the right and when the preference of a consumer for any product decreases the demand curve for that product shifts towards left. There are many computer companies in the market which produce desktop and laptop, below table shows how the price and consumer preferences of various laptops can shift the demand curve.

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CONSUMER PREFERENCE

VAIO 500 17%

APPLE 540 14%

SAMSUNG 700 17%

WIPRO 580 13%

IBM 600 16%

OTHERS 650 23%

Name of the company Avg price($) Consumer preferences

THE LAW OF SUPPLY AND SUPPLY CURVE:-

The law of supply means all other factors being equal, as the price of a goods or service increases, the quantity of goods or services offered by supplier�s increases and vice versa. If demand is held constant, an increase in supply leads to a decreased price, while a decrease in supply leads to an increased price.

Market Supply is the outline of all the individual supply curves, and is the horizontal sum of individual supply curves. It is subjective by the factors that determine individual supply curves, such as cost of production, plus the number of suppliers in the market. In general, the more firms producing a product, the greater the market supply. When quantity supplied at a given price decreases, the whole curve shifts to the left . This is generally caused by an increase in the cost of production or decrease in the number of sellers. An increase in wages, cost of raw materials, cost of capital, will decrease supply..

The relationship between the quantity sellers want to sell during some time period (quantity supplied) and price is what economists call the supply curve. Though usually the relationship is positive, so that when price increases so does quantity supplied, there are exceptions. Hence there is no law of supply that parallels the law of demand.

EXAMPLE: - Demand for new cars dropped because of the failing economy. Manufacturers stopped making cars (creating supply). The government offered incentives to trade in your old car for a new one, and created a demand. The car manufacturers responded by creating more supply.

A SHIFT VERSUS A MOVEMENT ALONG A SUPPLY CURVE

Just as with demand curves, it is essential to distinguish between a movement along a given supply curve and a shift in a supply curve. A change in price results in a movement along a fixed supply curve. This is also referred to as a change in quantity supplied. A change in any other variable that influences quantity supplied produces a shift in the supply curve or a change in supply.

For example, suppose the cost to a computer store of purchasing video rises. For a given rental price of software, the computer store may have to reduce the quantity of software it rents. Then for the same price, quantity supplied will be lower than before.

Let see how there is a movement along the supply curve in computer market; let us consider that the price of Sony vaio is increased by $80 then will see a movement in the supply curve as increase in the price of Sony laptop will effect in extension of the supply curve in of Sony laptops and in the same way if there is a fall in the price of Sony laptop we will see a contraction in the supply curve of Sony laptops. Let�s see this through the given graph.

A Supply Curve

Price of

Laptops Number of laptop

Sellers Want to Sell

$1.00 10

$2.00 40

$3.00 70

$4.00 140

1. CHANGES IN INPUT COST: -

As the prices of inputs such as labour, raw materials, and capital increase, production is likely to be less profitable, and less will be produced. This leads to a decrease in supply. In the same way to produce a laptop every company require raw material like (processor, hard drive, screen, portable sockets) then labour and capital. . If the input cost of any of this input increases this will result in the increases of the price of the computer, the less attractive profit opportunities force the producer to cut output, thus the raise in the input cost shifts the supply curve of computers to its left, the same way if there is any decrease in the input cost of the computers then the quantity supplied will increase and the supply curve will shift towards its right. An increase (decrease) in inputs costs shifts the supply curve to the left (right)

( http://www.humboldt.edu/~economic/econ104/sandd/ )

2. INCREASE IN TECHNOLOGY: -

Technology relates to methods of transforming inputs into outputs. Improvements in technology will reduce the costs of production and make sales more profitable so it tends to increase the supply.

3. FUTURE EXPECTATIONS:

If sellers expect prices to increase in future, they may decrease the quantity currently supplied at a given price in order to be able to create demand and supply more when the prices increases, resulting in supply curve shift to the left.

CONCLUSION;-