Economics (the law of demand and supply) - Essay Example

? Basically, the quantity of products offered in the market is mainly determined by the amount of price the consumers are willing to pay for those goods. Belch and Belch (2008) posit to the effect that the concept of supply is mainly concerned with the market offering which is determined by the price of that commodity at that particular period. The price that people are willing to pay for a certain product correlates with the quantity of goods supplied are supplied by the suppliers in the market. In economic terms, the law of supply states that the price of the product plays a pivotal role in determining the amount of goods that can be produced at a certain period since this is what people will be willing to buy at that moment. Thus, the law of supply is directly related to the price of the product given that it shapes the behaviour of suppliers. The relationship between the price of the product and the quantity supplied can be graphically illustrated using graphs called supply curves. As going to be explained, it can be seen that there is a movement along the supply curve as well as a shift in position of the same supply curve to the left or to the right as a result of various reasons. As such, this essay seeks to evaluate the main difference between movement along the supply curve as well as a shift in position of the supply curve. Various factors that can contribute to the shift in the supply curve are also going to be outlined and discussed in detail. According to Kotler and Armstrong (2004), a supply curve is used to show the quantity of products that can be supplied into the market at a particular price. This curve is diagrammatically presented in an upward slope where each point along the slope depicts the price of the goods and the quantity supplied at that particular moment. The movement along this curve can be downward or upward depending on the situation obtaining in the market. A downward movement entails that less is supplied for less price while an upward movements suggests that more products are supplied for a higher price. Belch and Belch (2008) posit to the effect that price is the major factor that determines the amount of goods that are supplied in the market by the suppliers. The law of supply states that the higher the price, the higher the goods the producers are willing to supply. If the price is high, this also entails that the level of supply is also high since the producers will be willing to supply more which is likely to result in the generation of more revenue which constitutes the basics of every business. As such, there is an upward or downward movement along the supply curve as shown in Figure 1 below. Figure 1 Source: http://www.investopedia.com/university/economics/economics3.asp As illustrated in the graph above, points A, B and C are showing the relationship between the price of the product and its supply. An upward movement along the supply curve from point B to C shows that an increase in the price of the product also means an increase in supply. It can be seen that P2 is lower that P3 while at the same time Q2 is lower than Q3. Price is the major determinant of the movements along the supply curve. The movement can also be downward where lower prices will mean the quantity supplied is low as well. The higher the price, the higher the products likely to be supplied given that more revenue will be generated as a result of high prices. On the other hand, a shift in the supply curve occurs when there is a change which is parallel to the original position of the supply curve. This shift can be on the left side or right side of the original supply curve. When this shift occurs, the price of the product remains the same (Netmba, 2010). There are other variables which are different from price change that can cause the supply curve to shift either to the left or right side of the original supply curve. For instance, an improvement in manufacturing technology can lead to a shift in the supply curve. There are also various factors that can cause the supply curve to shift as going to be discussed below. An improvement in the manufacturing technology entails that efficiency in production of goods is increased while costs remain relatively low (Netmba, 2010). If production of a particular product increases as a result of technology used while the cost remains the same, more goods are supplied and the price remains the same. Given such a scenario, the supply curve will shift to the right since the production will have been increased as illustrated in fig 2 below. The supply curve can shift to the left if the producers are forced to reduce the supplies. Figure 2 Source: http://www.netmba.com/econ/micro/supply/curve/ In this diagram shown above, the supply curve shifts to the right as a result of improved efficiency in the production of goods. This does not affect the price of that particular product. If there is something negative that affects production of the goods, the supply curve will shift to the left since the producers will be forced to limit their supplies at the same price. For instance, it there has been a natural disaster that affects the production of raw materials used in brewing beer, the suppliers may be forced to lower their supplies while maintaining the price since it will be a situation beyond their control. According to Netmba (2010), the number of sellers of a certain good also leads the supply curve to shift. If there are many suppliers, it means that more goods are produced and this shifts the supply curve to the right though the price will remain the same. The only thing that will change is that more products that are similar are now being produced in large quantities. This does not affect the actual price of the product. The other factor which can result in shifting of the supply curve is the price of inputs used in the production of a particular product. If the price of the raw materials increases, the producers are forced to cut down on the amount of products they will supply in the market. As a result, the supply curve will shift to the left given that the producers will not be prepared to meet the exorbitant expenses in manufacturing certain products which may negatively impact on the revenue generated from its sales. If the price of the raw materials for a certain product is lowered, its manufacturing is likely to increase and this will result in the supply curve shifting to the right. An increase in manufacturing of this nature does not affect the actual price of the product. The other important factor that can cause a shift in the supply curve is the aspect of expectations by the producers of certain goods. If they anticipate that there is likely to be a price increase of that product in the future, they can cut on production in order to resume at a later date when the price has been increased (Netmba, 2010). Given such a scenario, the supply curve will shift to the left since there will be a reduction in the supplies. When the prices are increased, there is likely to be a rise in the production of certain products since this will result in more revenue generated by the organisation concerned in the production of that particular good. Graphically, the supply curve will shift to the rise though the price remains the same. Only the quantity of the product will increase not the price. In conclusion, it can be noted that supply is mainly concerned with the quantity of the products that can be supplied for a certain price. Price is the major factor that determines the level of supply of a particular product in the market. If the price is higher, supply will also be high since it means that more revenue will be generated from the sales of that particular product. There is a close relationship between supply and price of a particular product and this relationship can be illustrated diagrammatically as shown in the diagrams above. It has also been noted that there is a movement along the supply which is mainly caused by the price changes of the product at that particular moment. The original supply curve can also shift either to the right or to the left as a result of other non price variables as discussed above. If the supply curve shifts to the left, it means that there has been a decrease in the quantity of products supplied in the market. On the other hand, if the supply curve shifts to the right, it means that there has been an increase in the supply of the products offered at that particular time. References Belch, GE & Belch, MA 2008, An approach to the law of demand and supply, Boston: McGraw-Hill Benassy, JP 1988, ‘The Objective Demand Curve in General Equilibrium with Price Makers,’ The Economic Journal, Vol. 98, No. 390, Supplement: Conference Papers. (1988), pp. 37-49, viewed 04 august, 2011, Kotler, P & Armstrong G 2004, Principles of Marketing, 10th Edition, Pearson Education International, NJ. NetMba 2010, The supply curve, viewed 04 August 2011, Read More