Supply and Demand Essay -- Economy Economics Supply Demand Essays

Supply and Demand Every organisation which provides heavys orservices to fee paying customers must, by its verynature, charge price for that good or service, topay for its costs, have retained profits forinvestments and to keep its sh areholders happy. In opening, the market price of either good or service isdetermined by the interaction of forces of demandand supply. There is an old saying, that ?if you idlerteach a parrot to say ?demand? and ?supply? youhave created a trained economist.?1 There is sometruth to this saying as most problems in theeconomics jackpot be examined by applying the rulesof demand and supply. Therefore, the concepts ofdemand and supply can be claimed to be amongthe most important in economics. In order tounderstand either of them it is necessary toexamine the factors that determine them. Although,a good?s price relative to other goods is probablythe most important factor influencing demand formost goods most of the time, there are otherfactors as well. These are disposable income, theprice of complimentary goods and substitutes,tastes and preferences, expectations, size ofpopulation, advertising. Suppliers on the otherhand are interested in making profits, and thusanything that affects profitability affects the supply.These include the price of other products, costs,technology and goals of firms. a) The price of anyproduct is determined by the interaction of theforces of demand and supply. The market price isset at the point, where demand equals supply,equilibrium. This can be seen from figure 1. Forthe purpose of this essay we entrust look at the pricesof beer. We can see that, the price is set at 1.65,where D intersects S. Fig. 1 The Penguinmental lexicon of economics defines demand as ?thedesire for a particular good or service supportedby the possession of the necessary means of change over to effect ownership?, while supply isdefined as? the quantity of a good or serviceavailable for sale at any given price?2. When aneconomi st refers to the demand for a product hemeans effective demand, which may be defined as?the quantity of the commodity, which will bedemanded at any given price over some givenperiod of time.?3 However, the price of the goodor service varies consort to the changes in eitherdemand or supply. In order to show that it isnecessary to... ...ng under?, if their shareholders are not satisfiedthey will sell shares and the caller-out will bevulnerable to take-over bids. In conclusion, it canbe seen that the principles of demand and supplyhave a theoretical influence on price determination.The theory provides a useful and simple tool indetermining the price of a product by the means ofdemand and supply, an equilibrium price.However, the theoretic approach, uses umpteenassumptions, which limit the application of theoryto the real seam environment. It is useful foracademic purposes, while it is difficult to imaginethat actual businesses will follow it in the businessplanning process. It is also difficult to use it as thetheory assumes the perfect market, which doesnot exist, with few exceptions, newsagents beingone of these. In other forms of competition firmswould build determine decisions on expecteddecisions of their rivals (oligopoly), or woulddecide by themselves taking into account only theirneeds (monopoly). Thus, it can be concluded thatcompanies would adopt their pricing policy on theenvironment they operate in, probably withouteven using the theory of demand and supply.