Primary Concepts of Economics for Demand and Supply

Describe about the Primary Concepts of Economics for Demand and Supply.

Introduction

The two most important primary concepts of economics are termed as demand and supply. They are also considered as the backbone of the market economy.  The total amount of a commodity and service that is desired by the purchasers is termed as demand. The purchasers are also willing to pay the full amount for the product. Supply, on the other hand signifies the total amount of commodities that is offered by the market. Price is mainly known as the reflection of demand and supply (Bowen and Sosa 2014).

Figure: Demand and Supply

(Source: Created by Author)

The curve SS denotes supply and DD denotes demand. P on the other hand denotes price that act as the reflection for both demand and supply.

The demand and supply will be analyzed by taking into consideration the impact of oranges. There are two main varieties of oranges in Australia such as Navel and Valencia. During the bumper harvest, supply of oranges increases while demand remains the same. The season has gone quite well in Australia that is perfect for oranges. This will lead to an increase in supply. At this point, the farmer reduces the price in order to sell all the oranges (Crettenden et al. 2014).

Figure: Increase in Supply

(Source: Created by Author)

The graph shows that the increase in supply of oranges due to bumper harvest had increased from S to S1. As a result, prices decreased from P to P1 however, demand remains constant.  However, in the case of terrible drought the impact on both supply and price will change.

Figure: Decrease in Supply

(Source: Created by Author)

The graph shows that during the terrible drought, the supply of oranges is reduced and the supply curve shifts to the left from S1 to S. The price also increases from P1 to P however demand remains the same.

The demand of the consumers for oranges is represented by the demand curve. The negative slope of the demand curve indicates the increase in the price of oranges. With the increase in price, demand for oranges is reduced (Tietenberg and Lewis 2016).

Figure: Impact on demand

(Source: Created by Author)

The graph shows that if the demand for oranges increases due to some medical research that indicates that oranges cure cancer, the demand for oranges will increase. The increase in demand for oranges will lead to increase in prices as well as quantity. Australian oranges have been demand and the quality has been exceptional. The demand will also increase if the customer desires to produce juice. In that case, the demand for Valencia will increase as 90 percent of Valencia is used to produce juice (Bohi 2013).

During cold weather, the improvement in the health of people will lead to increase in demand for oranges. However, supply will decrease because of the weather. This will in turn, lead to increase in price of oranges (Collins and Murphy 2016)

The graph shows that demand curve shifts to the right from D to D1and supply curve shifts to left from S to S1. This in turn, leads to increase in price from P1 to P. However, if demand curve decreases and supply increases in that case the market price for oranges will be lowered. This will in turn will lead to an undetermined output effect.

The factors that affect the demand sides of the market are income. An increase in income of the customers will increase the demand for oranges. This is mainly because the customers will be able to afford more oranges. Higher income takes place mainly due to lower taxes as well as higher salaries. Another important factor is quality that is an increase in quality of oranges will encourage the individuals to purchase more of oranges. Substitutes are also an important part of the factors that affect demand.  The most important substitute of oranges is Apple. If the price of apple increases, the demand for oranges will increase. Similarly, if price of apple decreases demand for oranges will decrease as the demand for apple will increase (Phlips 2014).

Weather is the most important factor, as a bad weather will have an impact on the production of oranges. Australia mainly exports fresh oranges during summer season to other countries. This is because; summer is the perfect season for the production of oranges. Demand is also affected by expectation.  If the customer expects the price to increase in future, they will purchase more of oranges today to avoid higher prices in the future.

Demand for oranges will increase if the price of complements decreases. Example, the decrease in the prices of fruits will increase the demand for oranges (Bowles and Polania-Reyes 2012).

The factors that affect the supply sides of the market are price of the given commodity that is the price of oranges will determine the supply. Price and supply of oranges are directly related to each other. In other words, as price of oranges will increase the supply of oranges will also increase. This will help the farmers in Australia to make profit (Brook et al. 2014).

Governmental Policy is another most important factor.  Governmental policy mainly includes the imposition of tax. Increase in tax will increase the cost of production that will reduce supply. The supply is reduced due to lower marginal profit.  Supply is also affected by the change in price of inputs. When the amount of inputs increases, the cost of production also is increased. The sellers reduce the supply by lowering the production. The goal of the firm is to increase the price when supply increases. This will help the firms to generate and maximize profit.

Conclusion

It can be concluded that Australia mainly exports fresh oranges during summer season to other countries. Demand curve mainly represents the demand of the consumers for oranges. The increase in demand for oranges will lead to increase in prices as well as quantity. During the bumper harvest, supply of oranges increases.

References

Bohi, D.R., 2013. Analyzing demand behavior: a study of energy elasticities. Routledge.

Bowen, W.G. and Sosa, J.A., 2014. Prospects for faculty in the arts and sciences: A study of factors affecting demand and supply, 1987 to 2012. Princeton University Press.

Bowles, S. and Polania-Reyes, S., 2012. Economic incentives and social preferences: substitutes or complements?. Journal of Economic Literature,50(2), pp.368-425.

Brook, E., Grilli, E. and Waelbroeck, J., 2014. Commodity price stabilisation and the developing countries. PSL Quarterly Review, 31(124).

Collins, C. and Murphy, A., 2016. Challenges in making healthy food choices. Helping people make healthy food choices during the lifespan.Nutridate, 27(2), p.3.

Crettenden, I.F., McCarty, M.V., Fenech, B.J., Heywood, T., Taitz, M.C. and Tudman, S., 2014. How evidence-based workforce planning in Australia is informing policy development in the retention and distribution of the health workforce. Human resources for health, 12(1), p.1.

Phlips, L., 2014. Applied Consumption Analysis: Advanced Textbooks in Economics (Vol. 5). Elsevier.

Tietenberg, T.H. and Lewis, L., 2016. Environmental and natural resource economics. Routledge.