Micro Economic Theories and Concepts & Its Applicability - Essay Example

Table of Contents Introduction 2 Details of Article 2 Micro Economic Theories and Concepts & Its Applicability 3 Conclusion 8 References 9 Introduction This report looks to analyze an article titled “Bad Weather hampers vegetable supplies, firms up prices” published in The Economic Times on 22nd December, 2014. The report will look to concentrate on using the different microeconomic concepts, theories and other aspect in relation to the article. This will help to facilitate a better understanding of the entire article and will help to understand the actual applicability of the different micro economic concepts in the real world. Details of Article The article shows that shortage in supply of different vegetables, fruits and other necessities has resulted in the price to go up as demand is unable to match the supply. The prime reason for the shortage has been attributed to the weather conditions which have made it difficult for people to transport the different necessities to different regions. This has resulted in process to go up in the wholesale market and the same will get reflected in the retail market. In addition to it poor crop and weather condition has destroyed the different products which is thereby going to increase the inflation rate and will have an impact on the demand for different products (Article. 2014). The article also states that increase in exports has also affected the supply as goods are being supplied to other countries creating a shortage in supply and has resulted in the prices of different commodities to go up. Improvement in the weather condition will help to improve the supply condition to a certain extent and will help to check a rise in prices. This will also have a positive impact but the degree to which prices gets reduced is an aspect which needs to be analyzed and looked at so that the manner in which future demand and supply situation will be determined can be understood. Micro Economic Theories and Concepts & Its Applicability It is clearly evident that shortage in supply has resulted in the price of products to go up resulting in a higher price for the same product. Before the shortage of supply the demand and supply curve along with the equilibrium points looked as The above graph shows that before the creation of shortage due to external factors beyond the control of human beings resulted in the equilibrium quantity to be Eq1 and equilibrium price to be Ep1. The equilibrium is achieved by the market forces and determines the point which were demand equals supply and ensures proper supply in the market. Now considering the situation where the shortage was created due to poor weather conditions and lack of transport to the required places so that necessities can be met. This thereby results in reducing the supply and a new equilibrium point is established which is shown below (Colell, Winston, Michael & Jerry, 1995) The above graph shows a decrease in supply of necessities as the supply curve has shifted upwards from S1 to S2. This has resulted in a change in equilibrium prices and quantity as fewer goods are being chased by more and more people. This has made the suppliers to increase the price as customers are willing to pay a higher price for the same products and services. This has resulted in a new equilibrium to be established at Eq2 and Ep2. It is evident from the graph above that the price of the product has gone up from Ep1 to Ep2 resulting in the customers paying a higher price for the same product. The equilibrium quantity on the other hand has decreased and has moved from Eq1 to Eq2. The overall phenomenon of such a decision has been that the price has gone up and supply has decreased considering the fact that the demand remains the same (Garg, 2010). The increase in the price would force certain section of the society to abstain from purchasing those products as the customers cannot afford those. This will thereby make the demand curve to move backwards and will decrease as shown in the graph below The above graph highlights that at the higher price less and less customers will be willing to purchase the product which will result in a decrease in demand from D1 to D2 as shown in the above graph. The supply remains the same over the short period of time as the weather condition hasn’t improved and this thereby doesn’t provide an opportunity to increase the supply. This thereby makes the supply to be at S2. This thereby helps to achieve a new equilibrium at Ep2 where the increase in price has reduced to a certain extent and a new point is established. The equilibrium quantity has also reduced as the supply is low and a new equilibrium points are established. The overall phenomenon of such a decision gets reflected on the demand and supply and results in a new equilibrium demand and supply point to be established. This is being reflected in the article as decrease in supply has resulted in the price of products to rise creating a new equilibrium price which is at a higher point compared to the previous one. The market has reacted to the manner in which they should as shortage has been reflected in the price and has made the demand for the products to decrease and prices to go up (Cottle & Wallace, 2005). Considering the same from the perspective of increase in export which has also resulted in shortage will show similar phenomenon. It A situation where export was not taking place had resulted in the demand and supply curve to be as The above graph shows that before exporting goods to other countries the equilibrium quantity to be Eq1 and equilibrium price to be Ep1. The equilibrium is achieved by the market forces and determines the points which were demand equals supply and ensures proper supply in the market. Now considering the situation where the economy looked to engage in external trade and increased their exports the demand and supply curve looked as The above graph shows a decrease in supply of necessities as the supply curve has shifted upwards from S1 to S2. This has resulted in a change in equilibrium prices and quantity as fewer goods are being chased by more and more people. This has made the suppliers to increase the price as customers are willing to pay a higher price for the same products and services. This has resulted in a new equilibrium to be established at Eq2 and Ep2. It is evident from the graph above that the price of the product has gone up from Ep1 to Ep2 resulting in the customers paying a higher price for the same product. The equilibrium quantity on the other hand has decreased and has moved from Eq1 to Eq2. The overall phenomenon of such a decision has been that the price has gone up and supply has decreased considering the fact that the demand remains the same (Bhaskar, 2007). The increase in the price would force certain section of the society to abstain from purchasing those products as the customers cannot afford those. This will thereby make the demand curve to move backwards and will decrease as shown in the graph below The above graph highlights that at the higher price less and less customers will be willing to purchase the product which will result in a decrease in demand from D1 to D2 as shown in the above graph. The supply remains the same over the short period of time as the weather condition hasn’t improved and this thereby doesn’t provide an opportunity to increase the supply. This thereby makes the supply to be at S2. The difference between the previous situation and the present situation is that the overall result of such a decision would be such that the equilibrium price change will be lower compared to the change in equilibrium demand as the products are necessities and people will have to make changes in other factors so that people continue to eat the different necessities (Docters, Schefers, Korman & Durman, 2008). The overall phenomenon of the article gets reflected and highlights the manner in which the different factors have an impact on demand and supply. The process results in bringing about a change in equilibrium demand and supply and brings about a complete change in the manner different goods and services are demanded. This has thereby made changes in the manner the market performs and has brought about a complete change in the manner different factors impact demand and supply of products. Conclusion The paper thereby evaluates the article and shows the applicability of the article to the different concepts and theories of demand and supply. It is clearly evident that the different factors have an impact on demand and supply which results in a shift in equilibrium quantity and price. The analysis also shows that the overall manner in which a market reacts gets changed due to different factors and needs to be evaluated and looked at so that the overall phenomenon which has an impact on the performance can be identified. This has helped to understand and apply the different concepts to the real world scenario and has brought forward the manner in which different facets and factors have a role in shaping the demand and supply of different products. References Article. 2014. Bad Weather hampers vegetable supplies, firms up prices. Economic Times, Retrieved on December 24, 2014 from http://economictimes.indiatimes.com/news/economy/agriculture/bad-weather-hampers-vegetable-supplies-firms-up-prices/articleshow/45597449.cms Bhaskar, V. 2007. The competitive effect of price floor. The Journal of Industrial Economics, 25 (3), 329-341 Cottle, R. & Wallace, M. 2005. The effectiveness of supposedly ineffective price constraints. Journal of Business & Economics, 10 (4), 71-76 Colell, M., Winston, A., Michael, D. & Jerry, R. 1995. Microeconomic Theory. 3r Edition, New York, Oxford University Press, Pearson Education Docters, R., Schefers, B., Korman, T. & Durman, C. 2008. The neglected demand curve: how to build one and benefit. Journal of Business Strategy, Volume 25, issue 5, pp. 19-25 Garg, S. 2010. Microeconomics: Introductory. 7th edition, pp 3.11-9.17, Dhanpat Rai Publication Read More