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Demand and Supply

Free Essays of Economics

The Aspects of Building Demand and Supply

Demand and supply of a product are probably the most important factors in the economy. These two variables determine other factors such as inflation and taxation. However, it is important to know the basics of getting the price and quantity for both the demand and the supply. This process is a two-way procedure that entails constructing a demand and supply schedule. After that, an economist will be able to draw the demand and supply curves. Moreover, in such a way, it is possible to determine the shortage or surplus of the particular product in the economy. This case stady will examine the aspects of building demand and supply schedules and demand and supply curves, and then it will establish other aspects that affect demand and supply, apart from price.

Demand and Supply Schedules

One of the ways to ensure the demand schedule is obtained to determine the demand and supply equation with values. The following are the two equations used to build the demand and supply schedule:

Q = f (P, I, PR, TE, PE, N)

Qs = f (P, CF, PR, N)

where the explaining variables are

P – Price

Qd – Quantity Demanded

Qs Quantity Supplied

PR – Price of related goods

PE – Future period

N – Number of Consumer

I – Consumer income per capita

However, an actual numerical demand and supply curve equation is needed to attain the equilibrium. The factors used for this aim will include the prices of related goods, a future period, consumer income per capita, and tastes as well as preferences. The researcher will use the obtainable independent factors affecting both equations. The following are some of the hypothetical examples of determining the companys demand and supply schedule together with the curves.

The Analysis of Demand and Supply Schedules

The schedule shows which goods the consumers are willing to buy and which factors of production the suppliers are willing to supply in the market at a certain price. Obviously, the producers will supply more into the market when the price is high, and the consumers will consume less of what is supplied due to the high price. However, if the price is low, then consumers will require a larger quantity and the suppliers will supply less.

Demand and Supply Curves

The demand and supply are simply a graphical presentation of the demand schedule. However, the demand curve has one additional useful aspect. The point of intersection between the supply and the demand represents the equilibrium. The equilibrium is the point where the market has to stabilize in that the quantity the producer is willing to supply is accepted by the consumer thus producing a common quantity.

Price Quantity demanded Quantity supplied
1.75 13000 25000
1.65 14000 24000
1.55 15000 23000
1.45 16000 22000
1.35 17000 21000
1.25 18000 20000
1.15 19000 19000
1.05 20000 18000
0.95 21000 17000
0.85 22000 16000
0.75 23000 15000
0.65 24000 14000
0.55 25000 13000

Table 1 Coca-Cola Demand and Supply Schedule

image1.png

Figure 1 Coca-Cola Demand and Supply Curves

Equilibrium Quantity = 19,000, Equilibrium Price = $ 1.15

Price Quantity demanded Quantity supplied
1.69 13000 25000
1.57 14000 24000
1.45 15000 23000
1.33 16000 22000
1.21 17000 21000
1.09 18000 20000
0.99 19000 19000
0.89 20000 18000
0.79 21000 17000
0.69 22000 16000
0.59 23000 15000
0.49 24000 14000
0.39 25000 13000

Table 2 Pepsi Demand and Supply Schedule

Price Quantity demanded Quantity supplied
26,835 100 1300
28,108 200 1200
29,381 300 1100
30,654 400 1000
31,927 500 900
33,200 600 800
34,473 700 700
35,746 800 600
37,019 900 500
38,292 1000 400
39,565 1100 300
40,838 1200 200
42,111 1300 100

Table 3 Mercedes Demand and Supply Schedule

image3.png

Figure 3 Mercedes Benz Demand and Supply Curves

Equilibrium Quantity = 700, Equilibrium Price = $ 34,473

Price Quantity demanded Quantity supplied
$ 8.60 20000 32000
$ 8.50 21000 31000
$ 8.40 22000 30000
$ 8.30 23000 29000
$ 8.20 24000 28000
$ 8.10 25000 27000
$ 8.00 26000 26000
$ 7.90 27000 25000
$ 7.80 28000 24000
$ 7.70 29000 23000
$ 7.60 30000 22000
$ 7.50 31000 21000
$ 7.40 32000 20000

Table 4 Pampers Demand and Supply Schedule

image4.png

Figure 4 Pampers Demand and Supply Curves

Equilibrium Quantity = 26,000, Equilibrium Price = $ 8

Price Quantity demanded Quantity supplied
340 7100 9500
330 7300 9300
320 7500 9100
310 7700 8900
300 7900 8700
290 8100 8500
280 8300 8300
270 8500 8100
260 8700 7900
250 8900 7700
240 9100 7500
230 9300 7300
220 9500 7100

Table 5 Craft Air Condition Demand and Supply Schedule

image5.png

Figure 5 Craft Air Condition Demand and Supply Curves

Equilibrium Quantity = 8,300, Equilibrium Price = $ 280

Demand and Supply Determinants

The Determinants of Demand

Consumer tastes and preferences:The demand and supply of a product greatly depend on the preferences and tastes of the customers. Basically, according to the research, these factors are derived from the fashion and trends (Petrarcanomics, 2008). The demand for a particular commodity that is appreciated by consumers will be greater, and thus the suppliers will be willing to produce and supply more of it in the market.

Consumer income:The consumer income is one of the determinants of demand. When a consumer has a larger money supply due to earning more, his/her request of a commodity will increase. On the other hand, if the consumers have low income, they will have to spend less thus lowering the demand for products.

Prices of complimentary goods and substitutes: The prices complimentary goods and substitutes determine the quantity demanded of a good in question. When the prices of goods that complement the particular good rise, the demand will go down thus making the customers demand less quantity (Petrarcanomics, 2008). The prices of substitutes also affect the quantity of a good at hand demanded. If the substitute costs less, then the quantity demanded of a good in question will also drop since individuals will opt to buy the substitute.

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Future expectations:Producers have a common attribute referred to as hoarding. The producers tend to supply less of a commodity when they expect future prices to go higher. They will reduce supply so that in the future they will be able to enjoy a larger profit margin due to the higher prices created by a shortage.

The Determinants of Supply

Rates of taxes and subsidies: The changes in taxes and subsidies matter for the cost of the particular good. If the taxes are raised and subsidies are reduced, the quantity supplied will be smaller since the cost of production will be higher (Petrarcanomics, 2008). On the other hand, if taxes are reduced and subsidies are raised, the producers will supply more since the cost of production and the operating costs will be relatively lower.

A number of suppliers:The rate of competition also matters. With the larger quantity of rivals, the supplier will have to share the stable rate of market share. Thus, the higher the number of suppliers the lower the amount supplied by a single producer.

Prices of raw materials:The prices of raw materials affect the prices the producers are willing to set for a particular product. When the prices charged for the factors of production are high, the manufacturer will apparently set the prices for goods higher due to the lower profit margin. Otherwise, the offering will not meet the equilibrium prices lowering the supplied quantity.

The rate of technology:The prices of goods provided in the market depend on the rate of technology as well. Advanced technology reduces the costs of production thus making the commodity cheap. As a result, the producers are supplying more since the profit margin is high.

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Notably, any factor that affects demand and supply apart from price causes a shift in both curves and not a movement along the curves.

Shortage and Surplus

Shortage in the market happens when the demand for the commodity is high but the suppliers are willing to supply a lesser quantity due to the lower price. Therefore, in the following tables, any negative figure below the equilibrium price and quantity show the shortage. The surplus occurs when the producer has supplied more compared to the quantity demanded. Thus, the extra quantity that remains that is not purchased is called surplus (Price, 2013). In the given tables, all the figures having positive values demonstrate surplus.

Price Quantity demanded Quantity supplied Shortages/surplus
1.75 13000 25000 12000
1.65 14000 24000 10000
1.55 15000 23000 8000
1.45 16000 22000 6000
1.35 17000 21000 4000
1.25 18000 20000 2000
1.15 19000 19000 0
1.05 20000 18000 -2000
0.95 21000 17000 -4000
0.85 22000 16000 -6000
0.75 23000 15000 -8000
0.65 24000 14000 -10000
0.55 25000 13000 -12000

Table 6 Coca-Cola Shortage and Surplus

Price Quantity demanded Quantity supplied Shortages/surplus
1.69 13000 25000 12000
1.57 14000 24000 10000
1.45 15000 23000 8000
1.33 16000 22000 6000
1.21 17000 21000 4000
1.09 18000 20000 2000
0.99 19000 19000 0
0.89 20000 18000 -2000
0.79 21000 17000 -4000
0.69 22000 16000 -6000
0.59 23000 15000 -8000
0.49 24000 14000 -10000
0.39 25000 13000 -12000

Table 7 Pepsi Shortages and Surplus

Price Quantity demanded Quantity supplied Shortages/surplus
26,835 100 1300 1200
28,108 200 1200 1000
29,381 300 1100 800
30,654 400 1000 600
31,927 500 900 400
33,200 600 800 200
34,473 700 700 0
35,746 800 600 -200
37,019 900 500 -400
38,292 1000 400 -600
39,565 1100 300 -800
40,838 1200 200 -1000
42,111 1300 100 -1200

Table 8 Mercedes Benz Shortages and Surplus

Price Quantity demanded Quantity supplied Shortages/surplus
$8.60 20000 32000 12000
$8.50 21000 31000 10000
$8.40 22000 30000 8000
$8.30 23000 29000 6000
$8.20 24000 28000 4000
$8.10 25000 27000 2000
$8.00 26000 26000 0
$7.90 27000 25000 -2000
$7.80 28000 24000 -4000
$7.70 29000 23000 -6000
$7.60 30000 22000 -8000
$7.50 31000 21000 -10000
$7.40 32000 20000 -12000

Table 9 Pampers Shortage and Surplus

Price Quantity demanded Quantity supplied Shortages/surplus
340 7100 9500 2400
330 7300 9300 2000
320 7500 9100 1600
310 7700 8900 1200
300 7900 8700 800
290 8100 8500 400
280 8300 8300 0
270 8500 8100 -400
260 8700 7900 -800
250 8900 7700 -1200
240 9100 7500 -1600
230 9300 7300 -2000
220 9500 7100 -2400

Table 10 Craft Air Condition Shortage and Surplus

Conclusion

Demand and supply can be obtained in different ways to attain the equilibrium. Although based on the research, it is important to note that the supply and demand schedule is one of the most important figures used to reach the equilibrium. Additionally, the data contained in it is used to draw the demand curve to enable the researcher to easily get the information about the equilibrium and surplus/shortage. The force of the market will also determine the price and quantity of products in the market. However, in the case of a monopoly, there are price and quantity controls and the rate of competition is relatively low. Since most people want fair prices and the producers want higher profit margins, the markets are not constant. The market forces make equilibrium change over the different time intervals.

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