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ECONOMICS FOR BUSINESS

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Table of Contents-

Introduction-

The law of demand and supply is considered to be one of the core concepts that are recognized in Economics and it is considered to be the backbone of the market economy. The supply and demand analysis allows the business organizations to understand and investigate the operations of the markets. The relation between the supply and the demand are helpful in determining the forces that exists behind the equitable allocation of resources within the market. The current essay will aim at identifying the major factors associated with demand and supply analysis that are helpful in determination of price of the product Polo mint in the region of United Kingdom. The different areas that will be explored in the essay will include the explanation regarding the concept of market equilibrium with the help of demand and supply diagram. The essay will also search for the factors that are responsible for causing change in the supply and demand of the products.

Explanation of market Equilibrium using demand and supply diagram-

The market equilibrium is identified as the situation when the supply and the demand of the good are equal. That means the demand and the supply function in this situation intersect at each and thus, the economy is considered to be in an equilibrium position. Whenever this situation is identified within the market, it can be said the most equitable and efficient allocation of resources have taken place because the amount and quantity of goods demanded and the quantity supplied within the market is exactly equal (Wang and Li, 2012). Thus, in such a situation, the individual, countries and the firm are satisfied with the present economic condition. In this condition, the consumers are able to receive all the essential good that are being demanded by them and at the same time suppliers are also able to supply the demanded good in the exact quantity.

In the above diagram, it can be observed that the equilibrium point is occurring with the intersection of the supply and demand curve and at this point there exist no allocation inefficiency.  In this graph, the quantity of the goods is taken as Q* while the price of the goods is taken as P* and these can be referred to as the equilibrium quantity and equilibrium price respectively (Friedman, 2017). In case of real market situations, for example, in case of products like Polo mints, the equilibrium could be attained in theory only and thus, the price of the goods like Polo mints are constantly fluctuating with respect to the changes in the supply and demand of the product.

Explanation of factors those are responsible for change in demand of the products and shifting of the demand curve-

The demand curve shift towards the right direction in case when there is greater change in the desire of customer for purchasing the product. On the other hand, the demand shifts towards the left direction the customer’s willingness for purchasing the good subsequently reduces.

The following factors can result in shifting of the demand curve:

  • Income of the customers: The significant change in the income of the consumers brings a shift in the demand curve. For example, the consumers having high income can subsequently purchase car and can avoid travelling in buses. This will reduce the demand for public transportation and will result in an inward shift in the demand curve (Tadasse, et. al., 2016). But in case of goods like Polo mints, this factor does not affect the demand of the products as both rich and poor can purchase the item without much difficulty.
  • Future expectations: The behavior of the customers is affected by future expectations and thus affects the demand of the products. In case, the product price might rise in future, the consumer will buy most of the product quantity in present leading to increase in demand and shifting the demand curve to the right.
  • Preference of the consumers: The change in taste and the preference of the consumer can result in shifting of the demand curve because with the new technology, more advanced products can be obtained which can shift the demand curve to the right (Lebersorger and Schneider, 2014). On the other hand, a change in clothing fashion can lead to decrease in demand of the clothes of current fashion can this can lead to the shifting of the demand curve to the left.
  • Substitute products’ price and the complementary goods: The complementary goods are identified as the one in which a rise in price of one good results in the reduction of the demand of the other. For instance, the demand for the software will reduce if there is potential rise in the price of the computer hardware. Thus, due to less buying of the computer, the demand for the software will reduce along with the demand for the software apps (Valin, et. al., 2014). The other examples that can be considered in this regard include bagels and cream cheese and the bacon and the eggs. In case of all these goods, the demand of one good will is affected with the rise in price of another good.

Possible reasons or the situations for the situation which leads to the change in the supply:

Movement in relation to that of the supply curve generally causes due to the possible changes in the prices of the goods in the market. Basically the law of supply basically states that the producers of the goods will generally increases their output when there is the increase in the price of the goods. Shortage in the supply of the goods hikes the prices in the market.

There are several factors which causes the shift in the supply curve of the Polo Mint:

In the situation when the willingness of the manufacturers to supply the more in quantity of the goods at the similar or the same prices than the supply curve generally moves to right (Wijaya, et. al., 2013). And in the opposite situation when the seller sells the low quantity goods at the similar prices then the supply curve moves to the left.

  • Input prices: In the situation when the prices of the raw material rise, the profits on the certain products generally go down, result of which the manufacturer of the polo mint to reduces the production volume of such goods and starts focusing on the products which are generating the high profits. In this situation the supply curve generally shifts to left.
  • Number of the sellers: The supply curve generally shifts to the right in the situation when the new sellers enter into the market. Competition generally rises in the situation when the varieties of the products are available in the market. This situation develops the downward pressure on the prices of the Polo mint.
  • Technology: Advancement in the technology basically hikes up the productivity in the process of manufacturing, this lowers the cost of production in the companies and makes the goods more profitable and this shifts the supply curve of the company to right (Kilian and Murphy, 2014). As the Polo mint is dealing in the manufacture of the confectionary items so the technological advancement in the manufacturing process of the company provides the quality to the goods and positively influences the supply of the company.
  • Taxation Policy: Changes in the taxation policy of the companies also influences the supply of the market. The companies who are highly taxed limit their production level and make the low level of supply of the goods in the market. This shifts the supply curve to the left. This factor is also applicable on the Polo mint which negatively influences the sales and the supply of the company’s goods in the market.
  • Different Goals of the companies:  Companies which are engaged in the achievement of the various goals of the company can’t focuses on the sales and the supply of the products in the market. This will negatively influences the supply curve of the company.

Explanation for the impact of the changes in the demand and supply on the prices of the Companies:

The positive interaction between the producers and the consumers in the competitive market will determines the demand and the supply equilibrium, quantity and the prices of the products.

Various market forces will drop the prices of the product if the supply of the goods exceed the demand and on the other hand the prices of the products starts rising in the situation when the quantity of the goods demanded exceeds the quantity of the goods supplied (Darracq-Paries and De Santis, 2015). This movement in the demand and supply continues till the time when there are no more changes and the demand gets equal to that of supply, this results in the market equilibrium.

The law for the demand and the supply can be termed as the economic theory which provides the explanation related to the relationship between the demand and supply influences the prices of the services and the goods in the market. It is the kind of the fundamental principal which states that in the situation when the supply of the goods exceeds their demand in the market this will leads to the fall in the price. And in the situation when the demand of the goods exceeds the supply of the relevant goods than it leads to increase in the prices of the goods (Peichl and Siegloch, 2012). By this theory this can be stated that there is the direct and the positive relationship between the demand and the prices of the goods.

On the hand there is the inverse or the opposite relationship between the prices and the supply of the goods when the demand of the goods remained unchanged. If the supply for the services and the goods increase in the market and the demand remains intact, this will lead to fall in the prices which will results into the lower equilibrium and the higher equilibrium in the quantity of the goods. And in the case when the demand of the goods remains intact and the supply decreases this will results in the hike of the equilibrium prices with the low quantity of the goods (Baumeister and Peersman, 2013).

In the case of the Polo mint, if the demand of the product and the services increases then the prices of the product of the company will also increase as there is the direct relationship between the demand and the prices of the goods. And in the case when the situation arise of the excess supply then the prices of the products will fall to influence the customers for purchasing the products.

Impact of change in demand on price and quantity of the Polo mint-

Change in demand:

The change in demand will result in the equilibrium price along with the output to change in the same direction. There can be two possible cases in this regard:

  1. The equilibrium price and the quantity of the polo mints will be reduced with a significant reduction in the demand of the polo mints (Wang and Li, 2012). This will result in excess supply due to reduction in the demand at the base level price. Further, the excess supply will cause a reduction in the price of the polo mint to fall and as a result, the producers will be supply reduced quantity of the good causing a decrease in output.
  2. The increase in demand of the polo mints will be proportional to the rise in the price and quantity of the polo mints. This is mainly because the excess demand would be generated at the initial price due to a rise in demand of the good. Further, the excess demand of the product will result in price to increase and thus the output will be increased with the rise in price of polo mint as the producers will be willing to sell more of the products (polo mint).

Changes in Supply and demand:

Apart from this, if the change in supply and demand is in opposite directions, then the change in price of the polo mints can be determined but the change in the output cannot be identified. This can give rise to the following two situations:

  1. An increase in supply and the reduction in demand would result in decreasing of the equilibrium price and the quantity cannot be determined. Thus, in such a situation for any specific quantity, the consumer will be placing a reduced value of the good and the manufacturers would accept a reduced price (Friedman, 2017). Therefore, the price of the products will fall. The impact of output will depend over the size of the specified two changes.
  2. The equilibrium price of the products would increase with the decrease in supply and increase in demand but the impact on equilibrium quantity cannot be determined. Thus, in such a situation for any amount of quantity, the consumers will be having higher value of the goods and the manufacturers would be setting a higher price for the supply of the goods like polo mints.

Impact of the change in the supply of the products or the goods on the prices of the polo mint’s products:

Changes in the supply of the polo mint will make influence over the equilibrium prices and the output in the opposite directions. Increase in the supply of the company will makes the possible reduction on equilibrium prices of the goods and increases the equilibrium quantity of the products. The initial increase in the supply will create the excess supply at the starting prices (Zilberman, et. al.,  2012). This excess supply will make the prices fall and increases the demand.

A possible decrease in the supply of the goods causes the hike in the equilibrium prices which will lead to decrease in the quantity of the goods. This decrease in the supply will possibly generate the excess demands on the beginning prices. This excess demand of the goods raises the price and leads to decrease in the demand of the goods.

This whole concept for the movement of the supply and the demand will equally effects the prices of the goods in the market (Kilian and Hicks, 2013).

Conclusion:

Supply and the demand of the products are very essential for determining the prices of the different product in the market. The current report is also presenting the detailed explanation about the relations between the demand and supply for making the influence over the prices of the products. The above presented report is making the discussion over the relationship between the demand, prices and the supply of the company polo mint. The report is making the conclusion over the various factors and the brief explanation over the situation of the equilibrium by the use of the demand and the supply in the market.

References-

  • Baumeister, C. and Peersman, G., 2013. Time-varying effects of oil supply shocks on the US economy. American Economic Journal: Macroeconomics5(4), pp.1-28.
  • Chand, S., n.d. Shift in Demand Curve: Increase and Decrease | Microeconomics. [Online] Available at: http://www.yourarticlelibrary.com/microeconomics/shift-in-demand-curve-increase-and-decrease-microeconomics/8936
  • Darracq-Paries, M. and De Santis, R.A., 2015. A non-standard monetary policy shock: The ECB's 3-year LTROs and the shift in credit supply. Journal of International Money and Finance54, pp.1-34.
  • economicshelp, n.d. Market equilibrium. [Online] Available at: https://www.economicshelp.org/microessays/equilibrium/market-equilibrium/
  • Friedman, M., 2017. Price theory. Routledge.
  • Hayes, A., 2003. Economics Basics: Supply and Demand. [Online] Available at: https://www.investopedia.com/university/economics/economics3.asp
  • Kilian, L. and Hicks, B., 2013. Did unexpectedly strong economic growth cause the oil price shock of 2003–2008?. Journal of Forecasting32(5), pp.385-394.
  • Kilian, L. and Murphy, D.P., 2014. The role of inventories and speculative trading in the global market for crude oil. Journal of Applied Econometrics29(3), pp.454-478.
  • Lebersorger, S. and Schneider, F., 2014. Food loss rates at the food retail, influencing factors and reasons as a basis for waste prevention measures. Waste management34(11), pp.1911-1919.
  • Peichl, A. and Siegloch, S., 2012. Accounting for labor demand effects in structural labor supply models. Labour Economics19(1), pp.129-138.
  • Tadasse, G., Algieri, B., Kalkuhl, M. and Von Braun, J., 2016. Drivers and triggers of international food price spikes and volatility. In Food price volatility and its implications for food security and policy (pp. 59-82). Springer, Cham.
  • Valin, H., Sands, R.D., Van der Mensbrugghe, D., Nelson, G.C., Ahammad, H., Blanc, E., Bodirsky, B., Fujimori, S., Hasegawa, T., Havlik, P. and Heyhoe, E., 2014. The future of food demand: understanding differences in global economic models. Agricultural Economics45(1), pp.51-67.
  • Wang, X. and Li, D., 2012. A dynamic product quality evaluation based pricing model for perishable food supply chains. Omega40(6), pp.906-917.
  • Wijaya, T.K., Larson, K. and Aberer, K., 2013, January. Matching demand with supply in the smart grid using agent-based multiunit auction. In 2013 Fifth International Conference on Communication Systems and Networks (COMSNETS) (pp. 1-6). IEEE.
  • Zilberman, D., Hochman, G., Rajagopal, D., Sexton, S. and Timilsina, G., 2012. The impact of biofuels on commodity food prices: Assessment of findings. American Journal of Agricultural Economics95(2), pp.275-281.

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