The Relation Between Supply and Demand - Essay Example

Supply and demand Introduction Dr. Mukund Mahajan, in his knowledgeable book, “Managerial Economics,” records that supplyand demand have to exist in equilibrium for harmony in the world of macro and microeconomics to sustain. Dr. Mukund further elaborates that a change in the equilibrium of supply and demand of money often results to a drastic change in the balance between supply and demand of commodities. Within the same field of economics, the supplier and consumer are vital in the equilibrium of supply and demand of both money and commodities (Mahajan Mukund 23). Furthermore, the relationship between supply and demand among consumers and suppliers establishes through pricing. It is noteworthy to recognize that, in microeconomics, it is possible to neglect the effects of supply on the demand. However, within macroeconomics, it is not possible as within this field the changes in both supply and demand are immensely vital. Ultimately, this is so because the suppliers are able to act as consumers at the same time. In relation to the topic, the following paper includes an elaborate analysis and summary of supply and demand in various companies and the way they affect people. In an article from Forbes, Brad Thomas presents an interview of a legendary investor talking about the commercial real estate business. As the legendary investor, Sam Zell spoke he was keen to provide vital opinions of what the future holds as far as commercial real estate is of concern. Sam Zell meticulously gave a clear analysis of how demand and supply affected the business. The article clearly deduces that in the real estate, since the year 2007 has had drastic changes, which have had detrimental effects. The supply field involves bringing up more buildings for consumers to take up, but since 2007, this has not been happening. The demand is soon outweighing the supply as the population is also on an increase (Thomas, web). Within the same article, we learn that the supply is not affected by demand only. Other factors play a significant role, for example, in the commercial real estate, supply and demand are highly affected by things such as technology and unemployment among the citizens seeking affordable places of residence. In addition, the article speaks of factors fuelling an increase in demand, which in this case is the need for housing. On the other hand, various factors, such as economy, play a leading role in discouraging supply. The article also clarifies that, in the commercial real estate, office space demand is on a decline. This is a fact propelled by the decline in supply. Hence, the relation between supply and demand is on a common platform where each factor has an essential effect on the other. The article indicates that it was in the year 2009 when people within the commercial real estate were most distressed in the industry. However, since then the distress is on a regular decline and by now, it is at its minimal. Concurrently, as the distress is on a reduction, various factors still fortify it, such as expiring loan maturities and distressed assets. Ultimately, research from the same article indicates that, over the next few years, people within the construction and development industry will be quite inactive. This is a fact attributed to the equilibrium of demand and supply factors. Within yet another article from The Economist, titled “Risk permanent damage,” we witness of how the inability to determine the supply factor led to inflation and depression of the economy in America. The article gives clear evidence of over investments back in the 1930s, which led to economic depression. This is a true reflection of the aftermath of a change in the equilibrium of supply and demand (The Economist, web). In addition, making false estimates on supply may also lead to detrimental effects on the economy. Evidence proves that overestimation of supply policies resulted to extensive inflation in the America. In the article, a well elaborate example is when in the 1970s and 1960s, economists made overestimations on the output, consequently the demand did not much up, and the result was inflation. Oblivious of the unemployment rate was one of the factors that caused the unexpected inflation. In relation to this, it is vivid that various factors such as unemployment can interrupt the supply and demand equilibrium. It is from the same article the importance of demand is elaborately explained, whereby its deficiency for a long period leads to a disadvantageous effect on the economic. Additionally, the reduction of labor force has contributed in a major way to the decline in economic growth. This is so because of the effect this has on the equilibrium found between supply and demand. The worrying thing about unemployment is amid permanency in the situation. Whereby, unemployment has signs of becoming a permanent situation among the citizens. In turn, this may cause a permanent distortion of one of the economy’s sources of supply. On the other hand, the article clearly elaborates on how demand may affect labor. In that, high demand can cause an increase in the supply of labor force, for example, during the world wars, women ventured into the industrial world, yet before that, they used to stay home. Analysts, with time, have revised the supply potential to a reasonable percentage that will ensure the equilibrium between supply and demand does not distort causing alarming results. ‘The History of Gold Prices,’ is an article written by Jane Hotspur and presented in the Money and Business website. The article speaks well of how gold is a commodity of interest to many for various reasons. Gold is a precious metal to many, thus, increasing the demand to the extremes. Surprisingly, the mineral is on a constant depletion making the supply minimal on comparison to its demand (Hotspur, web). However, these unpredictable changes in the patterns of supply and demand end up being an advantage to the country of supply. They take advantage of the situation at hand and hike the gold prices. This is a crystal indicator of how traders may take advantage of the imbalance struck between supply and demand. Moreover, Jane records of how the price of gold is dependent on the demand side of the economy as the willingness of the customers to purchase determines the gold price. On a decrease of the demand of gold, its price declines but when the supply is low, and the demand is high the price shoots up (Hotspur, web). The article takes a meticulous look as to the changing trend of the gold price over the past years. Economists, having analyzed the history of the gold price, have made elaborate conclusions that indicate the change in the demand of gold. People, when the economy is up and running well, opt to seek other investments such as stock other than in gold. In turn, reducing the demand of the commodity and subsequently lowering its supply in the market. It is credible to conclude that the demand and supply of precious metals, such as gold, is affected by the economy in an unusual manner. When the economy is on shaky grounds, gold and other precious minerals form a suitable cushion for people to lay their investments, as they believe such commodities have a stable form during times of economy instability. The article supports the above conclusion by displaying gold prices over various years, where even in times of disaster gold still reached an exceptionally high price. The following is an article taking a comprehensive analysis of demand and supply factors within the trade of oil. Over the recent years, the crude oil has had extreme drops in the prices, where it has moved down by 35%. This is an aspect attributed to the controversies surrounding the oil suppliers and sources, in this case, various countries such as Venezuela and Russia. However, the demand of oil remains high as ever, thus, causing an imbalance between the supply and demand factors (Farzad and Peter, web). On an increase in the supply of oil, when the United States offered to increase its reservoirs, the oil price shot up. Hence, in conclusion, an increase of supply automatically results to a hike in the price of the commodities involved, especially where the demand is still high. However, in times of such cases, analysts take their positions and offer to resolve the situation by providing valid reasons as to the increase of the commodity prices or yet reason to the much-needed decrease in price. For example, the rapid increase in oil prices after America’s announcement was not a credible reason for the upshot in prices. The analysts provided a much lower equilibrium price on comparison to the market price (Farzad and Peter, web). In a foxy manner to make a whooping killing in the industry, some suppliers acquired the oil at lower prices. Hoarding the commodity until the prices shoot up was the next move the suppliers made, but the banks were keen at such happenings. In a mission to salvage the equilibrium and keep it intact to some extent, the banks vehemently put a stop to all that by locking up the rates of returns from sales of hoarded oil. Keeping the equilibrium between supply and demand at an intact state once again proves to be of considerable importance to the economy. Additionally, more analysts provide information as to the resultant effects when a sudden rise in a commodity price, this time oil, is soon curtailed and drops. It is obvious that someone in the industry faces a rough time as the odds go against him, for example, the hoarders whose returns were slashed by the banks. ‘Key themes in gold Demand and supply in 2011’ is an article associated with The Financial Express as the source. The article takes into account the changes in the prices of gold that have had an extreme impact on its supply and demand. The article reports of an increase in demand and supply of the precious commodity in the year 2011. In this article, we find yet another outstanding factor that affects supply and demand factors, especially for commodities traded internationally. The factor in this case is the currencies of each country trading within a certain market, for example, gold market, against the major currency of the world, the American dollar. The currencies of leading producers of gold against the dollar did so well that the resultant effect is an increase in the commodity price (The Financial Express, web). The article records that the commodity suppliers implemented strategies to accommodate the low supplies, such as hedging positions by making initial sales of gold at high prices, which aided them in locking the prices. Hence, suppliers can intervene and strategize on ways of ensuring that their prices are favoring without affecting the equilibrium of demand and supply. However, the price increase of the precious stone did have an effect on demand as it lowered with time. The article reports of various countries where the demand of gold went on a downward trend with many of the affected countries being the greatest consumers of the commodity. In turn, minor key buyers took as the leading buyers of the commodity as their demand was still minimal but surpassing that of the major consumers. For example, Mexico was among the leading buyers of gold as the leading buyers resulted to a sumptuous reduction in the purchases. Moreover, central banks did also take up a sizeable share in the purchases of the same commodity; I believe it was a way of sustaining economic balance between supply and demand of the commodity. Conclusion Supply and demand, in both micro and macroeconomics, are highly dependent on each other and they fortify each other in different ways, as evidenced by the articles above. Research shows that as much as one of the factors is critical to the affected individuals, so is the other factor. However, the two factors are not the only key players of buying and selling as they also face effects from other factors, such as economic status of currencies. It is worth noting that the demand and supply factors also have extreme effects on various aspects. These aspects include pricing, marketing strategies of commodities and sustainability of commodities in the market. Hence, the two factors remain an integral part of both micro and macroeconomics. Works cited Farzad, Roben and Peter, Coy. “Oil: It's Back To Supply And Demand.” Businessweek. February 5 2012. Web.  April 4 2012. Hotspur Jane. “The History of Gold Prices.” Money and Business. September 28 2012. Web. April 4 2012. Mahajan, Mukund. Managerial Economics. Mumbai: Nirali Prakashan.2008. Print. The Economist. Risking permanent damage. March 20 2012. Web. April 4 2012. The Financial Express. Key themes in gold demand and supply in 2011. January 18 2012. Web. April 4 2012. Thomas Brad. “What Matters For Commercial Real Estate: Supply And Demand.” Forbes. February 24 2012. Web. April 4 2012. Read More