Supply and Demand
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Quantity demand are the goods and services the consumer is willing and able to buy; while, quantity supply are the goods and services the suppliers are willing and able to bring to the market. These two are the factors that interact in every market to determine the value and prices of goods and services, and they vary and influence each other because of the influence by various factors.
There are different goods produced, and their value in the same way differ, for example, cooking oil is more healthy than the cooking fat; hence its value is higher, and this means also that the prices are high. The higher the value of a good or service the higher the demand while the lower its value the lower the demand. Goods that are highly valued have a higher demand regardless of the high prices; this is a situation where the law of demand (demand is high when prices are low, and it is low when prices are high) is not obeyed. These two factors affect price largely in that when the demand is high, and the supply is low the prices tend to shoot up, and on the other hand, when the supply is high and the demand is low there are low prices.
In economics, both supply and demand analysis is different in their separate curves, but since they have to interact in the market they come together, and determine the equilibrium market price and quantities of demand and supply. In this interaction if the demand decreases it decreases both the equilibrium price and quantities decrease, and if the demand increases it increases both the equilibrium price and quantities. The same case also if supply decreases it increases the price and if it increases it increases the price; this is shifts in either supply or demand curves.
The interaction of demand and supply that influences that value of a commodity highly depends on the environment, or in other words, the place that the commodity or service is supplied. For example, ice cream supplied in a place with many children is likely to be on a high demand because children highly value ice cream. Fruits are most certainly on high demand in the juice processing companies, but their prices are influenced by the factor of the number of firms producing fruits available, and also the number of industries producing fruits.
Interaction of demand and supply also influence some of the price policies that the authority could decide to induce in the market. These include, for example, price rationing, which is a ‘device’ for availing goods and services to consumers when the demand is higher than the supply. Other price control means include price floor (the minimum price that the good or service can rise) and price ceiling (the maximum price that the good or service can fall). These two measures apply in most cases of oil shortage, which causes the oil stations to increase the prices due to the decreased supply, but the government can intervene by setting a price ceiling.
Interaction of demand and supply curves also brings about consumer surplus, which is the difference between the highest amount a person is willing to pay for a good or service and the available market price. It also brings producer surplus, which is the difference between the existing market price and the full production cost incurred. In the same curve, there also occurs deadweight loss that is the total loss of producer and consumer surplus from underproduction or overproduction. Demand and supply will always be the factors that bring effects on the market and production at large.
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