Supply and Demand Essay -- Economy Economics Supply Demand Essays

Supply and Demand Every organisation which provides goods or dish outs to fee paying customers must, by its verynature, charge damage for that good or profit, topay for its costs, engage retained profits forinvestments and to musical accompaniment its shargonholders happy. Intheory, the market wrong of any good or service isdetermined by the interaction of forces of submitand put out. There is an old verbalise, that ?if you assholeteach a parrot to say ? pray? and ?supply? youhave created a trained economist.?1 There is sometruth to this saying as more or less(prenominal) problems in theeconomics can be examined by applying the rulesof expect 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 undeniable toexamine the factors that determine them. Although,a good?s footing relation to other goods is probablythe most important factor influencing demand formost goods most of the time, there are otherfactors as well. These are liquid 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, proportion. This can be seen from figure 1. Forthe purpose of this essay we give wait at the pricesof beer. We can see that, the price is set at 1.65,where D intersects S. Fig. 1 The Penguindictionary of economics defines demand as ?thedesire for a particular good or service supportedby the self-denial of the incumbent means ofexchange to effect ownership?, while supply isdefined as? the quantity of a good or serviceavailable for sale at any given price?2. When aneconomist 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 given occlusive of time.?3 However, the price of the goodor service varies according 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 smart set 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 uptakeful and simple tool in ascertain the price of a product by the means ofdemand and supply, an equilibrium price.However, the theoretic approach, uses manyassumptions, which limit the application of theoryto the real caper environment. It is useful foracademic purposes, while it is difficult to imaginethat actual businesses will fol low 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 being unitary of these. In other forms of competition firmswould base pricing decisions on evaluatedecisions of their rivals (oligopoly), or woulddecide by themselves taking into account only their unavoidably (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.