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Why managers need to understand supply and demand

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Published: Mon, 5 Dec 2016

Why do you think it is important for managers to understand the mechanics of supply and demand both in the short-run and in the long-run? Give examples of companies whose business was either helped or hurt by changes in supply or demand in the markets in which they were competing.

These assignments have been assigned for understanding the importance of the mechanism of supply and demand as a manager in the short run and long run. I will discuss how the companies are affected by the law of supply and demand. For this understanding I select some companies in UK those business affected by the supply demand mechanism. The companies are:

Companies/Businesses Products/Resources Theory discussed

BP- Gasoline Basic rule of demand and supply law

Kid’s zone – Toy Determinants (products preferences)of

quantity Supplied and demanded.

Next Wear Determinants(Income Variations-Normal

Products)

Whitechapel

Footpath market Cheap Products Determinants (Income Variations-

Inferior Products)

Asda- Products Determinants (No of Population )

Bangali Fish Bazar Hilsha Fish Substitutes products of Other fish-

(Halal Fish Bazar) Determinants of Supply/Demand.

Spining market Spining Thread Complementary Products of

Clothes-Determinants

Of Supply/Demand

8. Fashion Market Wears No of Producers

9.Cellphone Market Cellphones Improvement of Technology

Noori/Taj Ramadan Products Future Expectations- Determinants of

Supply/Demand

Now we will discuss in details all of the companies, business and markets how the mechanisms of supply and demand affects them positively and negatively. The first company is BP and the product is Gasoline which will cover the Basic rule of demand and supply law one by one.

BP-Gasoline:

Law of Demand

Demand shows at various price, during a definite period of time, how much consumer are willing to buy products and services, in fact, we do not have unlimited resources, and what we need to buy and we able to purchase- at what price i. e. a simple representation of demand for a good- such as gasoline of BP.

When the gas price of BP is £2.00/ litre, individuals are keen and capable to buy 50 litre/week. When the price reduced to £1.75/litre, they may be capable to purchase 60 litres. Again, they may be ready to buy 75 litres, at the price of £1.50/ litre, at the same time as some gas usage is important-driving to work, i.e.-some use is elective. So, as gas prices reduced, people may intend to make more elective trips during weekends.

Here the demand schedule will be this:

Buyer Demand/Consumer

Price/liter

Quantity

demanded/week

(liters)

£2.00

50

£1.75

60

£1.50

75

£1.25

95

£1.00

120

This schedule, illustrates the law of demand: as Price reduces, the resultant quantity demanded tends to rises. While price is an obstruction, the higher the price of a product, the less it is demanded. When the price is falls, demand rises.

Therefore, there is a “contrary” relationship between price and quantity demanded. When we graph the affiliation, we obtain a downward-sloping line, similar to the one exposed in figure 1, beneath:

To produce a market demand curve for gasoline, individual demand is totalled and pooled.

The Law of Supply

Supply related to the producer’s aspiration to make a return, at the same time as demand explains the consumer side of buying decisions. At definite price points, through a definite time period, a supply schedule explains the quantity of manufactured goods that suppliers are intended and capable to manufacture and make presented to the marketplace. In brief, it shows us the quantities that suppliers are keen to offer at a variety of prices.

It occurs because suppliers are willing to have various costs of production. Only the most competent producers can make a return, at a low value, that’s why only they produce. Even at higher cost producers can turn to a profit, so everyone produces, at a high price. As we find that oil and gas companies are tending to and capable to supply specific quantity of gas at certain prices, as shown underneath:

Gas Supply/Consumer

Price/litre

Quantity

supplied per week (litres)

£1.20

50

£1.30

60

£1.50

75

£1.75

95

£2.15

120

Suppliers are tends to supply only 50 liters/ consumer/week, at a low price of £1.20/liter. When consumers are tends to pay £2.15/liter, suppliers will offer 120 liters/week.

When price increases, the quantity supplied increases at the same time. As price drops, supply also reduced. Therefore, the supply curve has an upward slope as there is a “direct” relationship.

Figure 2: Supply for gasoline:

(www.mindtools.com/pages/article/newSTR_69)

Kid’s Zone: Determinants (Products Preferences) of quantity Supplied and demanded

To make happy to children, parents paying much above the retail price. So that suppliers start to supply ‘Toy’ for possible demand in holiday season. Then, in January, Kid’s Zone’s show room reduces the products price their left over holiday items i.e. cards, decorations.

Parents show this attitude because their attitudes are leaded by the laws of supply and demand. So that these laws give us nice clues about what will be produced, how much should be produced, and how much should be charged in against of products. As supply and demand play major role in our economy, so it’s vital to know how they work and even how can we apply them to analyze decisions about price and quantity.

Based on the long experience of Kid’s Zone, in the long run If the price of gift items becomes high, the demand curve for will move inward. A new supply will be recognised from the gift shop owners like kids zone. The second demand and supply curve will be determined and maintained. At this point we will see a new price level and a new supply level that will create a new equilibrium point. Even it is possible to create a opposite situation if the price of the gift shop is declined the new demand curve and new supply curve will be produced to outward/forward. There will be created a new equilibrium point and a new price level and a new supply level.

Next Vs Whitechapel Market: Determinants (Income Variations-Normal and Inferior Products): The product of Next is normal products in England. In 2009-2010 recession people earning less so that people try to avoid the next product because the income level went down and Purchasing power parity went down. If recession continues in future, the people will be less interested to shop with next. In this economic recession people will go for Whitechapel Footpath market or any Cheapest Brand i.e. Primark.

Based on the long experience of Next and the shop owners of Whitechapel market, in the long run both of the business enterprise facing If the price of normal items becomes high, the demand curve for will shift inward for the normal items but the demand curve of the inferior products will shift outward. A new supply will be recognised from the shop owners. The second demand and supply curve will be determined and maintained both for inferior products and normal products because the demand and supply situation will be changed for both of them. At this point we will see a new price level and a new supply level that will create a new equilibrium point. Even it is possible to create a opposite situation if the price of the normal product is declined the new demand curve and new supply curve will be produced to outward/forward for normal products but the demand curve of the inferior products will shift inward. There will be created a new equilibrium point and a new price level and a new supply level.

Asda Products: Determinants (No of Population): the selling of Asda products depends on how many people living around the any stores of Asda. Whenever the people increase around the stores the sales will automatically will increase. Here the no of people influences the sales and demand of the products which is the demand side of the products. On the other hand, the supply side of the products will be influenced by higher demand of the products and Asda will predict how much products are selling currently and how much sold before and the availability of people around the stores.

Based on the long experience of ASDA managers, in the long run Asda facing a situation, If the price of the products of ASDA becomes high, the demand curve for will move inward. A new supply will be recognised from the ASDA. The second demand and supply curve will be determined and maintained. At this point we will see a new price level and a new supply level that will create a new equilibrium point. Even it is possible to create a opposite situation if the price of the products of ASDA is declined the new demand curve and new supply curve will be produced to outward/forward. There will be created a new equilibrium point and a new price level and a new supply level.

Bangali Fish Bazar: Hilsha Fish-Substitutes products of Other fish (Determinants of Supply/Demand): Now a day the supply of the Hilsa Fish is rare in UK and the price is high comparing to other fish, people will switch their decision to buy other Fish. In Bangla Fish Bazar -the last year sales figure shows that hilsa fish was sold less than other fish because in recession time the products price was high and the price of Hilsa fish was higher than other fishes. So that people are less inclined to purchase Hilsa fish and they buy other kind of fish instead of Hilsa Fish. At that time suppliers tried to supply other fish because there is high demand of other fish.

Based on the long experience of Halal Fish Bazar and other fish shops, in the long run both of the business enterprise facing a demand and supply situation, If the price of Hilsa fish becomes high, the demand curve for Hilsa fish will move inward but the demand curve for the others fish will shift outward. A new supply will be recognised from the shop owners. The second demand and supply curve will be determined and maintained. At this point we will see a new price level and a new supply level that will create a new equilibrium point. Even it is possible to create a opposite situation if the price of the Hilsa fish is declined the new demand curve and new supply curve will be produced to outward/forward for Hilsa Fish and the demand curve for the others fish will shift inward. There will be created a new equilibrium point and a new price level and a new supply level.

Spinning Market: Spinning Thread: Spinning thread is a Complementary Products of Textile clothes productions-Determinants of Supply/Demand:

One most important example in overall in Bangladesh is that Spinning threads are complementary Products for the textile clothes productions. Without spinning thread textile clothes are not possible to produce. If the price of spinning thread increased the demand of textile clothes fluctuates/decreased because the high price of thread triggers a lower demand of clothes productions. Textile clothes producer will be less inclined to produce clothes, whenever they try to produce they have to pay high price that is not possible in practically. As the clothes buyer want cheaper clothes.

Based on the long experience of spinning and textile mills of Bangladesh, in the long run both of the business enterprise facing a demand and supply situation, If the price of spinning thread becomes high, the demand curve for thread will move inward. A new supply will be recognised from the spinning owners. The second demand and supply curve will be determined and maintained. At this point we will see a new price level and a new supply level that will create a new equilibrium point. Even it is possible to create an opposite situation if the price of the thread is declined the new demand curve and new supply curve will be produced to outward/forward. There will be created a new equilibrium point and a new price level and a new supply level.

Fashion Market: Wears-No of Producers:

If the number of producer of fashion market becomes high, the supply curve for that market will move outward but the demand curve for the same supply remain same. A new supply will be recognised from the fashion market. The second supply curve will be determined and maintained. At this point we will see a new price level and a new supply level and a level of quantity demand will be created that leads to a new equilibrium point. Even it is possible to create an opposite situation if the number of producers of fashion wear are declined the new level of quantity demanded and new supply curve will be produced to inward and the demand curve for will be same. There will be created a new equilibrium point and a new price level and a new supply level.

Conclusion and recommendation:

After analysing each and every market situation based on the interview and conversation with managers and shop owners and the market supply demand information we reached in a conclusion that the supply and demand curve movement in the long run will depend on the no of consumers and producers, substitute/complementary product’s price, price of the products, improvement of technology, income variations, future expectations. We got sufficient data and facts information based on the experience of the market people to prove it properly. So managers should understand the basic rules of supply and demand and the influential factors on the demand curve or volume movement in the long run and in the short run.


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