BIZ SPONZORS
popular biz reading
Marketing Mix: Promotion
Employee Turnover
Marketing Mix: Price
Planning and Organizing
Maslow's Hierarchy of Needs
Key Performance Indicators
Sustainable Competitive Advantage
Ishikawa Fishbone Diagram
Price Determination
Supply Chain Concept
Employee Induction
3 Basic Finance Statements
Sales Forecast Accuracy
FMCG Sales Boosting
OTIF - On Time In Full
Merchandising at the Point of Sales
Promotion Mix: Advertising
Employee Motivation
Porter's 5 Forces
CHECK ON BIZ DEVELOPMENT
biz sponsors
BrainCast Relaxation
Advertise on Biz Development
My BrainCast
Energy Booster
Twitter
biz archive
2012
2011
2010
2009
2008
2007

My Introspective

by Laurus Nobilis
My BrainCast

Case Studies

Market Balance: Shifts of Supply and Demand (B)

 

Supply and Demand

 

 


What is the correlation between supply and demand curve? What are the three stages of supply and demand analysis?

 

Posted: Oct 2009


The demand and supply are different functions that are co-related. The change of demand curve influences the supply curve and vice verse. The higher degree of change on one curve is making higher influence to the other curve. 

In order to analyze how an event affects the market, we do so in three stages:
1.) First, determine whether the event shifts demand curve, supply curve or both curves
2.) Second, determine whether the curve shifts to the right or left
3.) Third, with the help of supply and demand chart compares the original and the new balance.

Suppose that we are in the middle of the heat of summer. How this event affects the ice cream market? Let's do the three steps analysis:

Phases in the analysis:
1.The heat affect the demand curve. Because of the heat, people want to buy a larger quantity of ice cream. Offer curve does not change.
2.Since people consume more ice cream, the demand curve shifts right.
3.Increase of demand increases equilibrium price with $2,00 to $ 2.50 and the equilibrium quantity from 7 to 10 ice creams.
CONCLUSION: The heat increases the price of ice cream, but sell much more ice cream.

Shifts of Supply and Demand

 

Fast growing company requires a fast development of capacities, both technical and human resources. If the company suddenly stop to growth, or even start to decline, than these capacities can be excessive burden to the company. In such situation the company must conduct cutting of capacities or reprogram activities to different areas of potential growth. Also, fast growing company is demanding for employees.

 

Let suppose that the sugar production fell short, and that there has been an increase in sugar prices. How this event affects the ice cream market?

Phases in the analysis:


1.Change of sugar prices (inputs needed for production of ice cream), affects the supply curve. It increases the production costs, and reduces the amount of ice cream produced by the company. Demand curve remains unchanged.


2.Supply curve moves to the right


3.Shift of supply curve increases the equilibrium of the price from 2:00 to $ 2.50, while  decreases equilibrium quantity from 7 to 4 cones.

 

 

 

Shift of Supply and Demand

If we combine both cases into one case, than the phases in the analysis are:
1.Both curves must shift.
2.Every curve moves in the same direction as in a separate analysis, ie the demand curve to the right and supply curve to the right.
3.There are two possible outcomes depending on the relative size of demand and supply shifts.
a) If the demand increases significantly and supply has only a small decline, then  the equilibrium quantity increases.
b) If the demand slightly increases and supply significantly decreases, equilibrium quantity decreases too

Shifts of Supply and Demand

Shifts of Supply and Demand

 

Related reading:

Aggregate Demand of Market 
Aggregate Supply of Products
 
Market Balance: Demand and Supply Equilibrium  

 

My BrainCast Self Improvement
blog comments powered by Disqus
 
     
My BrainCast My BrainCast energy Booster My Braincast Deep Sleep
My BrainCast Mandala Meditation My BrainCast Relaxation
my-braincast