Demand and offer in Microeconomics

Introduction

Economics is a study of how to work with limited resource to fulfill unlimited people wants. Demand and supply is both main idea of the modern economic. Demand is what people want and supply is just how many goods available for individuals want. In free market the price of good depends upon the amounts of consumers and just how many products available for them. As the result of that, when consumers understand regulations of demand and offer they have ability to choose when they can buy something with good deal and the suppliers can set the right price of this product and determine how many product they will make. In cases like this study we will measure the theory of demand and supply. We also give a good example of demand and offer in food market in Hanoi in storm season.

Theory

Demand and supply might be one of the basic concepts of economics. It is the core of market economy. Demand is the purchase price or quantity of a product or service desired by consumers. The demand relationship refers to the relationship between the price and quantity demanded, which will be the price and quantity people willing to cover. Supply is the quantity of products a market produces. The supply relationship represents the relation between the price and quantity supplied, which are the price and quantity suppliers willing to produce. Therefore, price is the main concern for demand and offer to consider increased or deducted, therefore demand and supply vary in line with the price. According to the law of demand and supply, the higher of a product's price the more suppliers will produce and the less people will buy. Due to that, the marketplace price is changes. ( Investopedia news and articles, copyright 2010 )

In such an instance, the number supplied is greater than the number demanded and there is a surplus of the good on the marketplace. From the graph we see that if the machine price is $3 (assuming relative pricing in dollars), the quantities supplied and demanded would be

Quantity Supplied = 42 units

Quantity Demanded = 26 units

Therefore there would be a surplus of 42 - 26 = 16 units. The sellers then would lower their price in order to market the surplus.

Suppose the sellers lowered their prices below the equilibrium point. In this case, the number demanded would increase beyond what was supplied, and there will be a shortage. If the purchase price is held at $2, the number supplied then would be

Quantity Supplied = 28 units

Quantity Demanded = 38 units

Therefore, there would be a shortage of 38 - 28 = 10 units. The sellers then would increase their prices to make more profit.

The equilibrium point should be the point at which quantity supplied and quantity demanded are in balance, which is where in fact the supply and demand curves cross. From your graph above, one sees that this is at a price of approximately $2. 40 and a quantity of 34 units. (NetMBA. com)

In general, if the price of a product is at low level, more folks want to buy it and the demand increase. As the result, you will see a shortage. The supplier now will be willing to create more because people still want to use that product. Therefore the supply increases. It'll keep increasing to a point where customers demand and the amount of that product is equal. Thus, there's a tendency toward an equilibrium point where quantity demanded equals quantity supplied. On the other hand, if the price of a product reaches higher level, less and less people want to buy it so the demand decreases. In the end, you will see a surplus. The supplier now will drop down the price to be able to attract more customers. This price keeps going down until they sell all out of the surplus. So, the price is moving backward for an equilibrium point where price demanded equals price supplied.

So, what sort of firm know when to produce pretty much? As in THE CHANGING TIMES 100 article states that "A significant facet of marketing is knowing what the demand is ideal for your products. All companies take part in marketing activities to determine the actual demand for their different products will be. For instance, Coca-Cola will want to investigate market trends in the carbonated drinks sector, while a bank will need to learn about the demand for financial services. Armed with these details they are able to make appropriate pricing decisions predicated on what other suppliers are doing, as well as on the demand from consumers on the market".

Some main factors creating the change in demand

Economic factors: When a country economy is good and folks have more money in their pockets. They likely want to take more and thus the demand will increase

Social factors: As the social trend changes, people might have less time for taking care of their houses. Therefore, they'll need to buy more washers and hire employees to do all the cleaning and cooking services. So, you will see more chance of firms making washer and higher demand for cleaning service.

The quantity and the price tag on competitive goods: the higher the price tag on a competitive good, the higher would be the demand because of this good as customers change from competitive goods. A good example for this is the fact that, if the price tag on i-phone mobile phone goes up, the demand of other smart phones increase.

Some main factors triggering the change in supply

Wants: it is merely the demand for a specific product. As the demand rises, the supplies will rise also.

The quantity of suppliers: If new companies join the market, usually the supply increases

Natural and unpredictable events: If earthquakes, floods and fire occur, the output likely to drop. Wars, which affect the way to obtain imported recycleables, the breakdown of machinery, may happen anytime.

(John Sloman (1998), and THE CHANGING TIMES 100, Copyright the changing times Newspapers)

Demand and Supply in Macroeconomics and Microeconomics:

Macroeconomics is the study of the whole economic activities such as inflation, recession and unemployment Therefore, it concerns with the total demand and total supply.

If the full total demand is high set alongside the total supply, inflation and balance of trade deficits will occur

Inflation: is the increase of the purchase price level in the complete economy. If there is a rise in demand, suppliers likely react by establishing high prices. In the end, if the demand is still high, they can sell as effective as before and make a lot of profits. Inflation will happen when all suppliers just keep their prices at higher level.

The balance of trade deficits happens when import is greater than export. When the aggregate demand rises, people will have a tendency to buy more foreign goods, more imported cars, wines, electronic equipments will be consumed. When the inflation is also high, the domestic goods are even harder to equate to foreign goods. As the effect, our goods cannot be consumed not only by our country but also foreign countries.

If the full total demand is low set alongside the total supply, unemployment and recession will occur

Recession: is the financial situation when business activities are declined. As the result, fewer and fewer people are willing to spend money. Thus, firms will have a lot of surplus goods. They more likely to buy less from the manufacturers, that may reduce the production in return.

Unemployment will happen if manufacturers do not need to produce anymore.

Microeconomics is the analysis about the average person elements of economy, individual firms. It studies about the demand and supply of specific products and services such as cars, clothes, food, electricians. . . .

We cannot make as many goods as want because having less resources. There are some choices must be made in our society

What should be produced? We don't have enough resources to produce as many goods as we wish. Therefore, we have to determine how many cars, how many buildings, how many hospitals should be produced?

How should things be produced? When there is several way to create thing, we have to decide which is best.

Who use our products? This is the challenge of income. We must decide the particular wage of particular job such as: doctor, engineer, farmer Because if indeed they have significantly more money, they more likely to consume more (John Sloman, 1998)

Case study

In October of 2008, Ha Noi was flooded by heavy rains. As the drains didn't work effectively as it was said to be. People in Ha Noi had an awful experience as a result of scarcity of the food.

Learning from that experience, people in Ha Noi today usually store food whenever a storm is announced coming. As the problem of fact, at night of July 17th this year 2010, the news forecasted a storm might be coming. However, within the next day, the elements turned normally again. Because of the worry about the scarcity of food, people in Ha Noi already rushed to the super market and bought as many foods as they can. The change of demand and supply made a lot of supermarket out of stock, also the price tag on the meals was doubled the supposed price. At some supermarket, people needed to struggle, pushed the other person just to fill up their fridge. Because of this, they had to eat frozen food for months while low price fresh food is selling everywhere. At this point, the market were required to suffer the loss of food demand because people already had food in their fridge.

In this case, when a demand surprisingly improve the quantity supply cannot afford to meet all the needs instead of that is the increasing of the purchase price. If the demand drops down, the quantity supply stays the same but the price must fall to attract more customers.

Conclusion

Nowadays, real life economy is too complex that even occasionally the law of demand and supply cannot be applied. The marketplace today is changing ceaselessly; many individual speculations are getting even more and more uncertainly. Therefore, people shouldn't rush in deciding to buy anything. For me, stock and real estate markets are actually risky for those who only follow the marketplace tendency meaning to say the majority of individuals and don't have enough knowledge of the way the economy works. Furthermore, the federal government should be flexible with the policy to keep carefully the market price at the right level so that both customers and suppliers can adapt with, and also avoid inflation and unemployment.

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