StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...

Supply, Demand and Equilibrium Price - Essay Example

Comments (0) Cite this document
Summary
The three situations which Mrs. Acres can follow can be represented by the following economic analysis. The first choice that she has is to maintain the current production and to increase the prices for the excess supply to dampen. We can represent the above situation diagrammatically…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER98.5% of users find it useful
Supply, Demand and Equilibrium Price
Read TextPreview

Extract of sample "Supply, Demand and Equilibrium Price"

Download file to see previous pages She does nothing but allows the market forces to increase the prices. This way the market demand curve will move from D to D2. A new equilibrium will now be formed as consequence where Supply curve meets D2 curve. At this stage the quantity will be great than the initial equilibrium quantity demanded will be 8000 and the prices will be greater $4.5 depending on the strength of the market demand. Some of the increased demand will be absorbed by the increase in price and equilibrium quantity supplied to the market will remain 8000 pies. This will result in increase in revenue for Mrs. Acres and consequently the increase the profits. Therefore, Mrs. Acres will choose this option if other options are not yielding better results than this one in terms of profits and revenue. However, by choosing this option her position will be vulnerable in the long-run and she can expect to lose in the broad perspective. In the long-run, high prices will encourage competition to enter the market and take some of the market share by keeping prices lower than competitors. As a result of this, in the long-run, her quantity supplied will be less than 8000, as charging high price will result in market share being lost to consumers. Similarly, as a result her sales may also experience a negative trend and she may lose out in the long run by raising prices. In other words, after the initial gain of increased revenue followed by increased, prices she may end up inviting a lot of competition to the industry and may lose out in the long run. The price of the pies will decline and come back to the normal equilibrium price of $4.5. In the long-run, the equilibrium price and quantity will be different because new companies can enter the market, whereas in the short-run, no new firms can enter the market. As a result of this long-run effects of this will be different than short run effects.


Case 2: Mrs. Acres decides to increase supply to meet additional demand











Case 2: Mrs. Acres meets the Market Demand
In this option suppose, the initial quantity is again 8000, represented by the label q1 on the diagram at a place where demand and supply meet. However, in order to meet the demand, Mr. Acres decides to increase the staff and in turn the supply. This will mean that there will be not increase in the price but the quantity demanded will now rise to q2, which is greater than 8000 pie. In the long-run, her sales and price will remain constant depending on the market trend and depending on the type of competition that exist in the market. However, since she is meeting demand there is no room for competitors to enter the market unless they come up with an extraordinary product. Therefore, by choosing this option she is discouraging the competition in the market which is going to keep her profits and revenues constant in the long run also and she may continue to enjoy the success in the long-run also. And the best thing here is that she will have to share profits with no one like she has to do in the option 3. Here, in the long-run, no new company can enter the market because there is no space in the market as Shelly Acres is operating under the efficient conditions of both allocative and productive efficiency as a result in the long-run, there will be no other effect and short-run conditions will prevail. If the ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Supply, Demand and Equilibrium Price Essay Example | Topics and Well Written Essays - 1000 words”, n.d.)
Supply, Demand and Equilibrium Price Essay Example | Topics and Well Written Essays - 1000 words. Retrieved from https://studentshare.org/macro-microeconomics/1505611-supply-demand-and-equilibrium-price
(Supply, Demand and Equilibrium Price Essay Example | Topics and Well Written Essays - 1000 Words)
Supply, Demand and Equilibrium Price Essay Example | Topics and Well Written Essays - 1000 Words. https://studentshare.org/macro-microeconomics/1505611-supply-demand-and-equilibrium-price.
“Supply, Demand and Equilibrium Price Essay Example | Topics and Well Written Essays - 1000 Words”, n.d. https://studentshare.org/macro-microeconomics/1505611-supply-demand-and-equilibrium-price.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Supply, Demand and Equilibrium Price

Price Elasticity of Demand

It is evidently clear from the discussion that in a business aiming at maximizing revenue, the PED has to be exactly 1. A PED higher than 1 reflects a very elastic product where the quantities demanded are largely affected by the price change. The figures in the paper reflect the way the various curves will look like in different scenarios. Mylan Laboratories Mylan Laboratories is a pharmaceutical company in Pittsburgh. The company announced an increase in the prices of their drugs. One client claimed that the company increased the price of a drug referred to as lorazepam from an initial $11 to $85. The man who had been a worker at an oil rig was involved in an accident and is...

4 Pages(1000 words)Essay

Demand, Supply and Market Equilibrium

... quantity will be supplied. Furthermore, the price of related goods also affects the supply of an object as the producers will shift to the good with a higher price. Lastly, if a seller expects the price to go up in some time then he will reduce the supply and wait for the right time to increase it. As our course is economics, these factors are relevant to us as the factors that influence supply. (Schafermeyer, 2000) The supply and demand interact to attain equilibrium. This equilibrium is a point where supply and demand becomes equal. That means whatever amount the producers are selling, will be bought by the consumer. The market equilibrium is important from our course point of view as the market is important in economics and so...
3 Pages(750 words)Research Paper

Question:Predict what would happen to the equilibrium price of marijuana if it were legalized. Use demand & supply analysis to a

... The equilibrium price of marijuana if it were legalized Clinical studies reveal that marijuana is a drug, with a potential capacity to provide optimum medicinal advantage, at some point (Miller 81). There are drugs however, that if misused, instead of providing its maximum function could harm rather than provide healing. The authorities identify marijuana as one of these drugs. This is the reason that this kind of drug has a label as illegal in almost all parts of the world, because of its viewed potential harm over its weighed advantage. It is in this reason that the supply of marijuana may be scarce while the demand is relatively higher. One reason that prevents the supply of marijuana is not mainly the level of the actual production...
4 Pages(1000 words)Research Paper

Supply & Demand

... in supply and demand is a universal term that impacts a great level of industries and firms throughout the system; however, even with that being said, it must also be understood that the supply and demand shift that are effected with regards to any salmonella and/or E. coli outbreak are usually regional in scope. Similarly, but somewhat more complex, is an understanding of the shifting nature of demand. With respect to demand there are two key factors, consumer tastes, and the price changes that effect quantity demanded. With regards to consumer tastes, the availability of comparable goods, time of year, performance of the economy etc, these are all factors that typically help to constrain or expand the level to which consumers are willing...
3 Pages(750 words)Article

Supply and demand and price elasticity

...1) i) Market can be defined as an or mechanism that brings together buyers and sellers of a particular goods, services or resources in order to determine a price and set equilibrium at point where the plans of buyer meet the plans of the sellers. From the above point, it is very clear that market equilibrium occurs at price or a point where the buyers are willing to buy a particular quantity of goods at a going market price and similarly sellers are willing to sell the same quantity of the goods at the same price. In simple words, market equilibrium is related to demand and supply. In order to understand the equilibrium situation in detail, let's first look at the meaning of the terms, demand and supply. Demand, simply, is a schedule...
15 Pages(3750 words)Essay

Supply, Demand, & Equilibrium

... 04 July 2008 Supply, Demand, and Equilibrium The wage of a worker as with the price of goods in the market is determined by supply and demand. It should be noted that in the labor market, as with the goods market, some workers are “valued” higher than the others thus demanding the payment of higher wages compared to the employees in other profession. Using real world example, professional sports players are paid much higher than farmers, factory workers, engineers, and teachers even though all of them are generally in competitive markets. In order to assess this situation, this paper will conduct an analysis using the diagram of supply and demand. In the first case, it will look at farmers, factory workers, engineers, and teachers...
2 Pages(500 words)Essay

Supply, Demand and Equilibrium Price of Motor Vehicles

...Supply, demand and equilibrium price of motor vehicles Demand for motor vehicles indicates how many motor vehicles at dissimilar prices consumers are keen to buy at a specific period of time; effective demand is when a consumer is both willing and able to purchase a motor vehicle, and supply refers to the amount of motor vehicles a supplier is prepared to proffer at different prices. A number of factors influence both supply and demand. An increase in income or an increase in the size of the family can change the demand and taste of the consumer which in turn raises both demand and supply. On the other hand if consumer’s income is reduced then demand for motor vehicles, especially higher priced vehicles, is reduced; as a result the price...
1 Pages(250 words)Essay

Demand & Supply

..., 1990). The changes in the cost of the raw materials that are essential process of production would alter the level of supply in the economy. The expectation of the market about of the future prices of the products may also have an effect on the level of supply. Finally, the size of the market is a major factor that would affect the supply of the products. Market equilibrium The market equilibrium is the definite combination of price and quantity of the product at which the quantity demanded is equal to the quantity supplied (Black, 1995). The interaction between demand and supply has been depicted with the help of the diagram below. In the above figure it can be seen that the initial demand and supply curve are Supply 1 and demand 1...
5 Pages(1250 words)Essay

Demand, supply, and equilibrium

The amount of a product that people in a market are willing to buy is known as the demanded quantity. The existing relationship between quantity demanded and price is known as the demand relationship. The factor of supply indicates the quantity of a product or a service that can be offered by the market. The quantity supplied is the amount of any good or service that the producers are able to supply in return of a certain price. The factor of price is a reflection of the demand and supply in the market. The supply and demand relationship underlines the key decisions regarding the allocation of resources in a market. In the theories of market economy, the demand and supply theory is used to allocate the available resources in the b...
7 Pages(1750 words)Term Paper

Strategic Opportunities for E-commerce Enabled Supply Chains

Scaling the e-business in IT infrastructure is important because it reduces the cost and expenses to interact with the customers and suppliers. It also helps in maintaining and in management of the e-business. 

“As your environment begins to evolve, it is important to recognize the value of horizontally scaling your platforms and applications to support increased loads and service requirements. As the concurrency and complexity of your systems grow, the greater the need becomes to support policy-based routing, application and data caches, as well as load balancing hardware and software.” (Whitepaper; August 2001)

From very starting there was a need for those applications that can be used to c...
9 Pages(2250 words)Report

How Can CRM Strategies Improve Efficiency and Effectiveness in Supply Chain Networks to Enhance Competitive Advantage

... CRM and Supply Chains How can CRM strategies improve efficiency and effectiveness in supply chain networks to enhance competitive advantage? Provide real life example to support your case With globalisation and the growth of a shared market across the world, it is very important for all brands to have individual recognition and be accepted as a part of the local scene as much a small business would be (Harker and Esan, 2006). While this is often the target of marketing executives, it is often found that customers may have different relationships with brands and the strongest customer relationships survive even when if product quality goes down or even if the competition offers a better deal (Tenser, 2006). In essence, the relationship...
6 Pages(1500 words)Assignment

American Airlines: Supply Chain Nightmare

For this reason, it is necessary that all business sectors are carefully reviewed – as often as possible – for the appropriateness of their structure and their daily needs; managers may fail to evaluate with accuracy their firm’s needs, a fact that can cause the failure of plans applied on the relevant organization (Hardless, 2005). On the other hand, the needs of various organizational departments are different; the methods used for the improvement of a firm’s activities should be flexible taking into consideration the characteristics of the specific organizational sector, its strengths/ weaknesses but also its role in the development of the firm’s activities. Boeing is a firm with a long presence in...
15 Pages(3750 words)Case Study

Relationship between Money Supply and Inflation in Saudi Arabia

Over the recent past, the effects of money supply, debt and inflation have become contentious issues for debate. Furthermore, frequent cautions concerning the risk of very large budgetary deficits aver that this would send up the upcoming state debt and capital rate as indicated by the rates (interests). As a nation, Saudi Arabia has a bi and enduring budgetary deficit over the past two decades and the government has been forced to go into the market so as to have loan access and to make up for the deficits. Given the impact of this on inflation and other economic variables, it's imperative and of great alarm for strategy architects (strategists) to understand how microeconomics has an effect on money supply, financial plan defici...
10 Pages(2500 words)Speech or Presentation

Binomial Method in Option Price

...BINOMIAL METHOD in OPTION PRICING This research illustrates the use of the Binomial method for pricing European and American options . These options have been priced by generating the Binomial tree for the stock prices and then for the options . This research deals with the important concepts related to option pricing with methods like Black Scholes method and the Binomial method. The fundamentals of option theory , European options , American options, put call parity have been discussed in the course of the research . The relationship between these two methods has also been highlighted . The step by step procedure in option valuation using the Binomial method , explains the simplicity and accuracy of the method . The Binomial method...
48 Pages(12000 words)Assignment

Impact of Forecasting Demand in Food and Beverage Service Organisation

Purchasing, storage, and production scheduling are some of the basic things needed to be adjusted periodically based on the demand in the market. It is not wise to purchase too many materials at a time when the demand was less. The to and fro movement of the material is essential for the smooth functioning of the storage area. Goods purchased and stored in the store must be despatched to the production area periodically before the expiry date to ensure that the organization might not suffer. But if the demand was poor, it is not possible to ensure the despatch of goods to the production unit which will result in wastage of materials. Generally, Purchasing, Storage and Production are the three areas in any manufacturing unit which...
6 Pages(1500 words)Research Paper

Money Supply Process

Liquidity of other assets counts on how effortlessly they are converted into notes and coins. In addition, as the degree of liquidity reduces, the difference between monetary assets and other financial assets becomes more and more blurred. As a result, in this context, the International Monetary Fund (IMF) has sought to sketch out standards for the calculation of the amount of money in an economy.

According to the IMF’s guidebook, the money supply is calculated as the joint deposit liabilities of the banking system and the currency liabilities of the central bank. They are held by households, companies, non-profit organizations and all public sector entities outside of the central government. In this authorized or...
8 Pages(2000 words)Assignment

Supply Chain Management: Conceptual Supply Network

A supply chain is a basic element of the growth of the manufacturing period. So far both could not work without it. A recent development in this era of new business strategies that must minimize risk in business by using friendly environment machinery, social acknowledgment as the requirement of the Government to the smooth and sequential running of a business operation. (Amlan M., Helen M., 2010). The supply chain could improve the cash transaction, manufacturing cost of materials, and communication flaws by planning of the company’s coordination to correlate finance, the society that helps to end-user and stakeholders. (Craig C., Dale R., Nov 2007) ( Seuring & Müller, 2008) (Lutz P., 2009).

Supply chai...
8 Pages(2000 words)Term Paper

Logistics and Supply Chain Strategy

Sustainability increases the mode of rail and sea freight and intermodal transport. The demand characteristics in some cases influence the choice of transport mode and even the need for safety stocks. The appropriate logistic strategy is essential for any organization as the manufacturing lead time is affected by the product characteristics and design. Globalization is a factor that causes longer lead times as a result of longer distances (Chan and Lee, 2005, p.78). The basis for any logistic strategy is the product. The product pricing is affected by the choice of transport mode. The production flow is smoothened with good demand predictability. Demand predictability is improved with the help of information technology through gre...
6 Pages(1500 words)Assignment

Purchasing and Supply

In numerous industrial sectors, the trend has been moving away from adversarial or arms-length supplier relationships to relational or obligational contracting forms of relationship, such as outsourcing. Boeing is one company that has embraced this trend as evidenced by the production of its 787 Dreamliner aircraft. As a way of reducing their aircraft timeline to 4 years from 6 years, Boeing began to outsource parts and to sub-contract other companies internationally. However, as stated by Brandes et al (1997), outsourcing tends to have the most success if it is based on strategic decisions including cost efficiency and core competency considerations, instead of being solely prompted by financial troubles. 
Whereas Boein...
6 Pages(1500 words)Assignment
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Supply, Demand and Equilibrium Price for FREE!

Contact Us