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Demand and Supply Term Paper=Final

Oct 23, 2014

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Demand and Supply

Executive SummaryThe quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand relationship. Supply represents how much the market can offer. Price, therefore, is a reflection of supply and demand. Price and quantity are inversely proportional. This means that the higher is the price level the lower will be the quantity demanded and, conversely, the lower the price the higher will be the quantity demanded. Market demand is the aggregate of the demands of all individuals within the marketplace. A market price is not a fair price to all participants in the marketplace. Too high a price will likewise attract additional producer competition within the market. When either demand or supply changes, the equilibrium price will change. With no increase in the quantity of product demanded, there will be movement along the demand curve to a new equilibrium price in order to clear the excess supplies off the market. Consumers will buy more but only at a lower price. Likewise a shift in demand due to changing consumer preferences will also influence the market price. With no reduction in supply, the effect on price results from a movement along the supply curve to a lower equilibrium price where supply and demand is once again in balance. Sugar Crises in PAKISTAN THROUGH demand and supply effect. Rise in sugar prices in Pakistan is the perfect example of demand and supply impact. The supply in the market is not enough to meet the current demand. Since sugar cane and sugar production is low, the mill owners can accumulate marginal quantities of sugar and cause crisis in the market which leads to increase in raise price. Sugar consumption in Pakistan is very high. Limited sugar supplies and increase in prices during the year 2010-11 negatively affected household sugar consumption. Sugar prices have been on the rise since December 2009 and are continuously increasing. Prices during 2011 are estimated to remain stable due to increased sugar production along with the relatively controlled international sugar prices. The future stability of retail prices will also depend on established prices in the international market.

Afsheen Zaidi

Page 1

Demand and Supply

Table of Contents

Table of Contents .......................................................................................................................................... 1 Executive Summary........................................................................................ Error! Bookmark not defined. Demand and Supply ...................................................................................................................................... 4 Introduction .............................................................................................................................................. 4 Demand ..................................................................................................................................................... 5 Law of Demand ......................................................................................................................................... 5 Factors of Demand .................................................................................................................................... 6 1. 2. 3. 4. 5. 6. 7. 8. 9. Changes in income ........................................................................................................................ 6 Changes in the prices of substitutes ............................................................................................. 6 Changes in the prices of complements ......................................................................................... 6 Changes in the size and age distribution of the general population ............................................ 6 Changes in interest rates and the general availability of credit. .................................................. 6 Advertising and changes in fashion can have a market effect on demand .................................. 6 Seasonal changes .......................................................................................................................... 6 Changes in technology .................................................................................................................. 7 Consumer expectations ................................................................................................................ 7

Supply........................................................................................................................................................ 8 Law of Supply ............................................................................................................................................ 8 Time and Supply .................................................................................................................................... 8 Factors of supply ..................................................................................................................................... 10 1. Production cost: .............................................................................................................................. 10 2. Technology: ..................................................................................................................................... 10 3. Number of sellers: ........................................................................................................................... 10 4. Expectation for future prices: ......................................................................................................... 10 Equilibrium .............................................................................................................................................. 11 Disequilibrium ......................................................................................................................................... 12

Afsheen Zaidi

Page 2

Demand and Supply Shifts vs. Movement ............................................................................................................................... 15 2. Shifts ............................................................................................................................................... 16 Shift in Demand Curve......................................................................................................................... 16 Shift in Supply Curve............................................................................................................................ 17 How Supply and Demand Determine Commodities Market Prices ........................................................ 17 Sugar Crises in PAKISTAN THROUGH demand and supply effect ........................................................... 19 Statistics of sugar industry .................................................................................................................. 21 Production of sugar cane .................................................................................................................... 21 Sugar Production................................................................................................................................. 22 Consumption trends of Sugar ............................................................................................................. 22 Production, Supply and Demand Data Statistics: ............................................................................... 24 Conclusion/ Recommendation ............................................................................................................... 25 References .................................................................................................................................................. 26

Afsheen Zaidi

Page 3

Demand and Supply

Demand and Supply

IntroductionSupply and demand is the most basic concepts of economics and it is the backbone of a market economy. Demand refers to how much quantity of a product or service is desired by buyers. The quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand relationship. Supply represents how much the market can offer. The quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price. The correlation between price and how much of a good or service is supplied to the market is known as the supply relationship. Price, therefore, is a reflection of supply and demand.

Afsheen Zaidi

Page 4

Demand and Supply

DemandThe demand for a particular product or service is actually how much people are willing to purchase at different prices. Therefore, demand may be defined as a relationship between price and quantity, keeping all the other factors constant. The relationship between price and quantity demanded is known as the demand relationship. Demand can be represented graphically as a downward sloping curve with price on the vertical axis and quantity on the horizontal axis (figure 1)

Law of DemandThe law of demand states that, if all other factors remain constant then higher the price of a good, less would be the demand of that good. In other words, the higher the price, the lower the quantity demanded. Price and quantity are inversely proportional. This means that the higher is the price level the lower will be the quantity demanded and, conversely, the lower the price the higher will be the quantity demanded. Market demand is the aggregate of the demands of all individuals within the