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Supply and Demand Essay examples

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Supply and Demand

Every organisation which provides goods or services to fee paying customers must, by its very nature, charge price for that good or service, to pay for its costs, have retained profits for investments and to keep its shareholders happy. In theory, the market price of any good or service is determined by the interaction of forces of demand and supply. There is an old saying, that ?if you can teach a parrot to say ?demand? and ?supply? you have created a trained economist.?1 There is some truth to this saying as most problems in the economics can be examined by applying the rules of demand and supply. Therefore, the concepts of demand and supply can be claimed to be among the most important in economics. …show more content…

For most of the products, when disposable income goes up the demand goes up as well, and vice versa, thus affecting the price of the product. A rise in income leads consumers to buy more of a product, as they have more money to spend. This can be seen from figure 2. Fig.2 Thus, we can see that, when income rises, demand shifts to D1, and since S curve remains the same, the price of beer goes up to 2.00. The other factor that influences demand for beer, could be the change in consumer tastes and preferences. Some industries like clothing and furniture are more affected by it than the others. However, in beer market it also has a great effect. It can go out of fashion if consumers believe that, it is more fashionable to drinks spirits or not to drink at all, and vice versa consumers might decide that beer is more fashionable than spirits. The effect of fashion and tastes on the prices can be seen from figure 2.
If beer becomes less popular D shifts to D2 and the price becomes 1.45, while if it is more fashionable D shifts to D1 giving the new equilibrium price of 2.00. Another factor, which influence demand, is the price of other products, substitutes or complementary goods.

Complementary goods are purchased together to satisfy one want, and these goods are in joint demand. For beer, the best example could be pubs and night clubs. If the prices of admission to night clubs goes up, the

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