Market Demand and supply Essay Example

Market Demand and supply 6

Market Demand and supply

Market Demand and supply

At this time of the year, the tourism market is nearly kicking off around Africa. It is at this time when parents pay hugely towards retail commodities to make their families happy and entertain themselves dearly. Afterwards, in the month of January prices of commodities lower abruptly. The answer behind the said variation of commodities can be found in understanding demand and supply laws (Prasch, 2008).

Law of Demand

This law explains the amount of products consumers will be willing to buy, on different price joints and during a particular period of time. Furthermore, every individual is different compared to the other financially and so is their willingness to purchase different items. Looking at the variations in gasoline prices especially in the month of June and July we are able to understand this law. When the price of gas was \$3 per liter, individuals were willing to purchase 60 liters on average per week. When the price dropped to \$2.75 per liter, they were able to purchase 70 liters. When at \$2.50 a liter, they were prepared to purchase 85 liters. Therefore, while prices of gas go down, individuals opted to make extra trips optionally on weekends (Prasch, 2008).

Law of Supply

This explains the number of products suppliers will be willing and capable of producing and making it available in the market, at particular price points, during particular period of time. Generally, it shows the quantities the supplier is capable of offering at varied prices. When the prices of gasoline were \$2.20 a liter, the suppliers (E.g. Oilibya, Kenol, etc) were willing to provide at most 60 liters for every consumer a week. When the consumers were willing to give \$3.15 a liter, the suppliers provided 140 liters each week (Badiru, 2013). This means that as price increases, the quantity supplied increases as well. When price lowers, supply also lowers. A direct relationship is reached thus the supply curve will have an upward slope.

Equilibrium is achieved when in the market there is no shortage or surplus of goods so the quantity supplied is equal to the quantity demanded. When a good is highly demanded, but little amounts of the good are supplied there occurs shortage. In addition, when goods are sold at low prices the demand goes high thus creating the shortage. On the other hand, when prices are too high for the consumers, the goods will not be highly demanded and this will cause surplus in the market. In most cases the quantities and prices tend to go towards the equilibrium and it is illustrated by June and July market for gasoline (Badiru, 2013).

When gasoline is sold as low as \$2.20 per litter the demand is higher than the supply and due to the high demand there will be gasoline shortage in the market. When there is a shortage of gasoline the prices go up to reduce the high competition of purchasing the product among the consumers. However, the consumers might decide to use the substitute of gasoline if the prices go too high thus decreasing the demand despite the availability of supply. Since there is still supply and demand is low there might be surplus and to eliminate it there should be reduction of prices thus consumers go back to purchase the gasoline. The reduction and increase of prices is introduced to maintain the equilibrium of the market (Henderson, 2004).

References

Badiru, A. B. (2013). Project Management for the Oil and Gas Industry: A World System Approach. U.S.A: CRC Press.

Henderson, H. D. (2004). Supply And Demand. Kila: Kessinger Publishing.

Prasch, R. E. (2008). How Markets Work: Supply, Demand and the ‘Real World’. UK: Edward Elgar Publishing.