Supply And Demand Essay

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Example #1

In the article, we find that teenagers have the opportunity to be demanding about their salary in the babysitting field because the number of babysitters today is scarce. The babysitting population, teenagers, find themselves busy with school, part-time jobs, and extracurricular activity. Teenagers with drivers licenses are even more scarce than those without, all in all, It’s hard to find a babysitter.

Times have changed, just twenty years ago there were 33 million children who needed to be watched, and 39 million babysitters (age 10 – 19), recent polls suggest that children that need to be watched raised 18 percent to 39 million while baby sitters dropped 5 percent to 37 million. Will Write a Custom Essay Specifically For You!

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The rise in children coupled with American families spending more time out than years ago has allowed the babysitters to set their prices without haggling. Baby sitters are making well over the federal minimum wage of $5.15 an hour because they are in demand, and scarce; the babysitters who train in CPR, serve dinner, and drive are the hardest to come by and can demand the highest wages.

In this article, we see many examples of supply and demand and the powers of supply and demand. Babysitters are in demand, there is an increase in the number of children who need to be watched yet there are relatively few who choose to babysit from the already decreased amount of the babysitter workforce.

This gives the babysitter the advantage of a non-competitive workforce, allowing the baby sitter to set the price without bargaining. If we were to compare two different production possibilities frontiers, we would see a left shift of the curve while demand for baby sitters rises, from 1980 to 1996.

In economics we consider this inflation, the number of resources(babysitters) decreased while the demand for them rose. This is what we would consider the beginning of an economic problem because the resources are scarce. This increased in price for that service.

We also see that the most experienced, oldest, responsible, and best-trained babysitters set the highest prices by up to 60% from a “novice” salary of $4 to an “expert” salary of $10 and consumers are willing to pay. A consumer is willing to pay that extra $6 an hour for the peace of mind they get when they go out and know that their children are being attended to in the best possible way, much like a consumer is willing to buy name brand products for a higher price because they just “feel” like its better.

In the next two or three years the workforce of the babysitters will grow, and so will the number of people under the age of 10, this will show a steady PPC with no signs of relief for the consumer.

This article shows the power of supply and demand. 20 years ago when children under the age of 10 and baby sitters age 10-19 were both fewer, we saw more competition between the baby sitters resulting in price decreases. Today with fewer baby sitters, all with busy schedules, and more young children we see the demand increase increasing in price.


Example #2

Recent medical advances have greatly enhanced the ability to successfully transplant organs and tissue. Forty-five years ago the first successful kidney transplant was performed in the United States, followed twenty years later by the first heart transplant. Statistics from the United Network for Organ Sharing (ONOS) indicate that in 1998 a total of 20,961 transplants were performed in the United States.

Although the number of transplants has risen sharply in recent years, the demand for organs far outweighs the supply. To date, more than 65,000 people are on the national organ transplant waiting list and about 4,000 of them will die this year- about 11 every day- while waiting for a chance to extend their life through organ donation (Yoakam 1). This figure, when looked at from an economic standpoint, exemplifies a case of supply and demand between organ donors and patients with a diseased organ.

Just as there are a supply and demand in any given market, there are also complementary and substitute goods. Who decides who gets transplants and who doesn’t. This question implies that the organ market also needs to have various, effective allocation mechanisms. The organ market has complementary and substitute goods and can use various effective allocation mechanisms.

A person that receives an organ transplant almost always requires several complementary goods. One obvious good is the medical care received for the actual transplant and for follow-up doctor s visits. For most people who undergo an organ or tissue transplant, the quality of their life and general overall health improves following the transplant.

Persons who receive a transplant are frequently required to take a series of medications that suppress their immune system and prevent their body from rejecting the newly acquired organ. They often will need to undergo frequent medical visits and testing to monitor the transplanted organ. At times, the organ transplant will be unsuccessful and the organ may need to be removed.

These people will be placed back on the waiting list for another organ (Yoakam). Two more goods are the medication to prevent rejection and (assuming the patient has insurance) payments made by the patient s insurance company for the patient s care. The donor s family is not responsible for the costs incurred through organ donation.

The recipient, most times through their insurance carrier or Medicare pays for all of the costs related to the donation of organs and tissue. If the price of organs increases (whether due to an increase in demand or decrease in supply) the demand for the complementary good will decrease.

The converse of a complementary good is a substitute good. In the organ market, a substitute good depends on what organ is being considered. People with diseased livers particularly at risk because there is no medical alternative to transplantation for keeping a patient alive. The only two obvious substitute goods for a liver transplant would be extensive medical care and pain medications.

On the other hand, someone with diseased kidneys has more options. One obvious option would be dialysis. But, when looked at as a whole, the organ market does have substitute goods. If the price of organs increases (whether due to an increase in demand or decrease in supply) the demand for substitute goods will increase.

Since the National Organ Transplant Act of 1984 prevents a monetary price from being placed on a donated organ, effective allocation mechanisms must be utilized. Allocation mechanisms must be accessed because of the shortage of supply compared to the demand. In any market, allocation mechanisms rely on many factors but some include friendships, under the table payments, predicted profit, and personal biases.

In the organ market, several allocation mechanisms come to mind. There is always the possibility that a particular patient has a family member or friend that is in the organ transplantation profession, and/or the family of the patient can pay-off someone in charge of the distribution of organs. In reality, these two mechanisms are frowned upon for their lack of morality. One real possibility for an allocation mechanism is to make a waiting list on a first-come-first-served basis.

This method would only be for those who, in a panel of doctors’ professional opinions, had a chance to survive after the transplant. In other words, those dying with cancer along with a diseased organ would not be on the list. During the week of April 14, 2000, National Organ and Tissue Donor Awareness Week, the President of the United States gave a proclamation.

In this he stated, To address this critical and growing need, Vice President Gore and Secretary of Health and Human Services Shalala launched the National Organ and Tissue Donation Initiative in December of 1997. This public-private partnership was designed to raise awareness of the success of organ and tissue transplantation and to educate our citizens about the urgent need for increased donation.

Working with partners such as health care organizations, estate planning attorneys, faith communities, educational organizations, the media, minority organizations, and business leaders, the Initiative is reaching out to Americans of all ages, backgrounds, and races, asking them to consider a donation. In its first year alone, the Initiative made a measurable impact, as organ donation increased by 5.6 percent.

Although morals can play a part in the organ market, economic principles are present. All of the aforementioned material is based on ceteris paribus. Complementary and substitute goods are associated with the organ market. These goods, although varying with different organs, are affected by the price of organs just like any other market.

Since there is a shortage of supply compared to the demand, allocation mechanisms are necessary. Some of these mechanisms can be morally bound. Since a person s life is on the line in this market, any dead-weight loss at all is a serious matter. One can only hope this market is more concerned for life than it is for economic benefits.


Example #3

Laws of Supply and Demand The market price of a good is determined by both the supply and demand for it. In the world, today supply and demand are perhaps one of the most fundamental principles that exist for economics and the backbone of a market economy. Supply is represented by how much the market can offer.

The quantity supplied refers to the amount of a certain good that producers are willing to supply for a certain demand price. What determines this interconnection is how much of a good or service is supplied to the market or otherwise known as the supply relationship or supply schedule which is graphically represented by the supply curve.

This causes the price and the quantity to move in opposite directions in a supply curve shift. Also, if the quantity supplied decreases at any given price the opposite will happen. A sudden increase or decrease in the supply of a particular good is also known as a supply shock. A supply shock is an event that suddenly changes the price of a product or service.

This sudden change affects the equilibrium price. The two types of supply shocks that exist are the Negative Supply shock and the Positive Supply shock. A negative supply shock, which is a sudden supply decrease, will raise the prices and shift the aggregate supply curve to the left. A negative supply shock can cause stagflation due to the combination of rising prices and the falling output.

Meanwhile, a positive supply shock, an increase in supply, will lower the price of a good and shift the aggregate supply curve to the right. A positive supply shock could be an advancement in technology which most certainly makes production more efficient which thus increases output.

For example, a positive supply shock could be shown in the early 1990s when communication and information technology exploded which resulted directly in productivity increase, and an example of a negative supply shock would be that of the high oil prices associated with the Arab oil embargo of the early 70s is the classic example of this occurrence. Any other factor could also produce this effect.


Example #4

A free-market system is a basis for supply and demand. Throughout history, the base concept of supply and demand has not changed a great deal. Only through the evolution process of this economic system have we gained better ways to determine prices and goods produced. History and the Progression of Supply and Demand took quite a while to reach what it is today.

In 1776, Adam Smith wrote the book entitled “Wealth of Nations” which set a primary basis for the idea of supply and demand. In his book, he thought that the supply price would be a fixed price and that the demand would increase or decrease as the price increased or decreased. In 1817, a man named David Ricardo established an economic model of what he thought supply and demand should be.

In the late 19th century a field of marginalist thinkers, which was composed of Stanley Jevons, Carl Menger, and Leon Walras, had the idea that supply and demand were that the price was set by the most expensive price. This sort of thinking was a great improvement over that of Adam Smith’s.

Today’s more modern ideas of supply and demand are derived from Alfred Marshall and Leon Walras. These two men combined both supply and demand to create an equilibrium point. This point is where the supply curve and the demand curve cross. Since then the supply and demand theory has not been changed in any way, only monitored. Market Exchange has since driven supply and demand.

Market Exchange is the need to buy and sell goods. If Market Exchange did not exist then supply and demand would also not exist. A free-market economic system is when the market, decides what to produce and in what quantities by the purchaser and seller negotiating prices for goods and services. There are two basic concepts of a Free Market System. One of them is the economic concept of supply.


Example #5

One of the most fundamental basics of microeconomics is the supply and demand of services or products of a given nature. Despite its frequent use, the analysis of the supply and demand of the products in the market provides a very basic understanding of the market nature and what should be done to promote either of the factors when it is down (John, 2001).

In every product that is in the market, one way or another there must be a substitute which is called a competitor in the market and a complements which works together with the product, the most typical example of a complement is the ink of a biro pen, if you can buy a biro then you ought to afford the ink for the biro just like the case of a car and fuel, they are complements of each other even though they don’t have a direct relationship. The changes in the prices of one product can have some effects on the prices of its complements.

On the other hand, substitute products have a direct relationship because one can be replaced for the other. This effect is the genesis of the marketing strategies that we witness in the modern world. An increase in marketing strategies has been largely contributed by the increases in the number of substitute products available in the market.

In essence, the higher the demand for a certain commodity or services, the higher the number of competitors in the market fighting for the commodity or the services by supplying the need to the market (John, 2006). This analysis is going to discuss the demand and the supply of a commodity which is the computer in this case.

Some of the factors that affect the demand and the supply of a computer include the following; the initial factor that can affect the supply of computers to a particular region is the demand for computer services in the region.

If a region has less demand for computer services, there is going to be less demand for computers in the region. The supply of computers is also limited by the availability of substitute products like the PDA and advanced phone handsets that can perfectly perform the task of a computer.

Additionally, the demand for computers is subject to the availability of services that requires computers, such activities include the Cyber Café, computer learning center, major offices which computer systems required in a given region among other factors that will demand the services of computers.

In our case, some of the most common substitutes of the computer include; Personal Digital Assistant (PDA) and advanced mobile handsets. These two products are the major replacement or substitutes of the computer. They are the substitutes of the computer because one can use the product instead of opting to buy a computer.

A PDA is a typical example of a computer substitute because it does the functions of the computer with minimal effort and space, unlike the computer which occupies space and hence creates inconvenience to the user while traveling. A mobile phone also creates a typical substitute for a computer because of its ability to perform the task of a computer with an added advantage of its size. The two products are the typical examples of the computer substitutes available in the market.

From the basics of microeconomics according to William (2008), a complement of a product is the product that is needed for the primary product to work properly. In essence, some of the most basic complements of a computer are the peripherals such as the printer, joysticks, scanners, internet connection, and software systems.

There are both hardware and software complements of the computer. Software developers are usually the primary developers of the complements of a computer system. The software performs both the primary and the most fundamental role in a computer system; a computer cannot be functional without its software installed. Additionally, the software performs the secondary factor of adding value to the computer system. The value added by the software has been the genesis of the ever-increasing demand for the computer.

his paper has succinctly discussed the factors that influence the nature of the demands and the supply of a commodity which is taken to be a computer in this case. The demand of the computer is subject to its substitutes and to some extent its complements, it complements simply adds value to the computer while its substitutes reduce its demand in the market.

The price elasticity of the commodity is subject to the changes in demand as a ratio of the price. The necessity of the product is thus supposed to increase its price elasticity; however, this is not always the case because of other influencing factors.


Example #6

Demand is defined as a quantitative reflection of the orientation of the people, at a particular price, per unit of clock time. Demand for a commodity is affected by several genes such as Price, income, and price of related goods. The routine of the relationship between the requirement for a commodity and the factors affecting it is called a demand function. The main factors, other than price, which affect the market demand for a product are: –

  • Price

The requirement for a good depends upon its toll. People prefer to buy more at a lower price and less at a higher price. Price and measure demanded are inversely related and demand curved shape slope downwards from left to right.

  •  Income:

As the income of the consumer step-ups the quantity of demand will increase and as the income dusk the demand also reduction. Income and demand are positively correlated. Demand curvature gradient upward from left to right.

  •  Want, Tastes, and Preferences:

Demand for trade good influenced by factors like the wants of the consumer, their sense of taste, orientation, and fashion. Wants and fashion changes the demand for some commodities gain while other lessening.

  •  Price of substitutes:

Demand for one commodity not only depends upon its monetary value but is also influenced by the Mary Leontyne Price of substitute goods price and demand are positively related.

  • Prices of Complementary Goods:

Like automobiles and petrol, the price and quantity requirements are inversely proportional. For example, if the price of the car gains the need for petrol will decrease.

  • Size of Population:

The larger the size of the universe greater is the demand for trade good and vice versa. With an increase in the population the demand for various goods increases and vice versa.

  • Climatic Conditions:

Climatic variations influence the demand for some good for example coolers and refrigerators etc. are demanded during summer and woolen demanded during winter. Changes in climatic conditions have an impact on demand for trade good and services

  •  Customs and Conventions:

Demand for some good is influenced by customs and customs for example demand for new articles of clothing during festival time of year, demand for gold during summer, etc.

  • Advertisement:

Demand for commodities will be influenced by Advertisement run and sales packaging strategies. Attractive advertisement mass will be induced to steal certain commodities.

  •  Social Environment:

It influences Demand for certain commodities, for example, people bread and butter in posh localities create demand for a railway car.

  • Government Policy:

If the government wants to encourage the consumption of certain commodities it can offer revenue enhancement conceding & subsidies and encourage the people to buy them or increase the tax to reduce them.

The law of demand explains the direction in which the demand changes for a given change in price. The elasticity of demand is classified into 5 different types

  • Perfectly elastic demand
  • Perfectly inelastic demand
  • Relatively elastic demand
  • Relatively inelastic demand
  • Unitary elastic demand
  1. Perfectly elastic demand – A small alteration in the Price leading to an infinite change in quantity demanded.
  2. Perfectly inelastic demand – Irrespective of the modification within the value the demand stay unchanged.
  3. Relatively elastic demand – Proportionate modification in quantity demanded is greater than the proportionate change in toll.
  4. Relatively inelastic demand – Proportionate variety in quantity demanded is less than the proportionate change in price.
  5. Unitary elasticity of demand – Proportionate modification in quantity demanded equals to proportionate variety in price.

The price elasticity of demand can be measured by the following methods:

  •  Proportionate or Arc Method
  • Total Outlay or Expenditure Method.

It is used when price and need data are available. Sometimes one may have information about the price and the spending incurred on a commodity rather than price and demand. In such a fount outlay method is used.

  •  Diagrammatic or Point Method.

The arc method is used to measure the elasticity of need between two spots in time of a need curvature. One should bear in the idea that a particular full point of a need curve consists of a group of Leontyne Price and a group of quantity needed. The elasticity of demand at any point of a demand curve can be measure by the diagrammatic method.

The legal philosophy of supplying indicates the direction of modification —if the Price goes up, supply will gain. But how much supply will advance in answer to an increase in price cannot be known from the practice of law of supply. To quantify such change, we require the concept of elasticity of supply that measures the extent of quantity supplied in response to a change in price.

The elasticity of supply is classified into 5 different types:

  1. Elastic supply
  2. Inelastic supply
  3. Unit elasticity of supply
  4. Perfectly elastic supply
  5. Perfectly inelastic supply
  • Elastic supply

Supply is said to be elastic when a given percentage of alteration in price leads to a larger change in quantity supplying.

  •  Inelastic supply

Supply is said to be inelastic when a given percentage alteration in Leontyne Price causes a smaller change in a measure supplied.

  • Unit elasticity of supply

If monetary value and quantity supplied change by the same magnitude, then we have a unit of measurement snap of supply.

  • Perfectly elastic supply

When there is an infinite supply at a term and the supply becomes zero with a rebuff fall in price, then the supply of such a commodity is said to be a perfect rubber band.

  • Perfectly inelastic supply

When the supply does not modification with a modification in cost, then supply for such a good is said to be perfectly inelastic.


Example #7

A free-market economy is an idealized form of a market economy in which buyers and sellers are permitted to carry out transactions based solely on the mutual agreement without interventionism in the form of taxes, subsidies, regulation of government provision of goods and services. In this type of economy, all decisions are made by individuals and firms.

The economy is in equilibrium when income equals output equals expenditure or simply, Injections equal Leakages. On a chart, this is represented when the supply and demand curves intersect at the point where supply and demand are equal.

The price at which the number of products that businesses are willing to supply equals the number of products that consumers are willing to buy at a specific point in time.

Basic Supply/Demand Graph. If either of the curves shifts, a new equilibrium will be formed. If one of the determinants of demand changes, the whole demand curve will shift.

This will lead to a movement along the supply curve to a new intersection point. Likewise, if one of the determinants of supply changes, the whole supply curve will shift. An increase in supply will lead to a shift to the right whereas a decrease in supply will lead to a shift to the left of the original supply curve. This will lead to a movement along the demand curve to the new intersection point.

When more people want something, the quantity demanded at all prices will tend to increase. This can be referred to as an increase in demand. The increase in demand could also come from changing tastes, where the same consumers desire more of the same good than they previously did. Increased demand can be represented on the graph as the curve being shifted right because, at each price point, a greater quantity is demanded. An example of this would be more people suddenly wanting more coffee.

This will cause the demand curve to shift from the initial curve D0 to the new curve D1. This raises the equilibrium price from P0 to the higher P1. This raises the equilibrium quantity from Q0 to the higher Q1. In this situation, we say that there has been an increase in demand which has caused an extension in supply.

Conversely, if the demand decreases, the opposite happens. If the demand starts at D1 and then decreases to D0, the price will decrease and the quantity supplied will decrease – a contraction in supply. Notice that this is purely an effect of demand changing. The quantity supplied at each price is the same as before the demand shift. The reason that the equilibrium quantity and price are different is the demand is different.

When the suppliers’ costs change the supply curve will shift. For example, assume that someone invents a better way of growing wheat so that the amount of wheat that can be grown for a given cost will increase. Producers will be willing to supply more wheat at every price and this shifts the supply curve S0 to the right, to S1 – an increase in supply which has caused an extension in demand.

This causes the equilibrium price to decrease from P0 to P1. The equilibrium quantity increases from Q0 to Q1 as the quantity demanded increases at the new lower prices. Notice that in the case of a supply curve shift, the price and the quantity move in opposite directions.

Conversely, if the quantity supplied decreases, the opposite happens. If the supply curve starts at S1 and then shifts to S0, the equilibrium price will increase and the quantity will decrease which will lead to a contraction in demand.

The quantity demanded at each price is the same as before the supply shift. The reason that the equilibrium quantity and price are different is the supply is different. The decrease in supply could have been caused by several possible events including; an increase in the cost of a factor of production and a fall in the number of suppliers.

Another way to view this is that the supply curve moves up and down as opposed to left and right. If the ability to produce increases as compared to a steady price, the supply shifts up. If the ability to produce decreases, the supply curve shifts down.

Many factors influence the position and shape of the demand curve; such as the price of the product and tastes and preferences. The influences of the factors affecting demand on market demand are two types; influences causing a movement along the demand curve and that of a shift in the position of the demand curve. Increases in supply may be caused by events such as reductions in the cost of production, the fall of the price of factors of production, and government subsidies.


Example #8 – interesting ideas

Supply and demand trends form the basis of the modern economy. Each specific good or service will have its supply and demand patterns based on price, utility, and personal preference. If people demand good and are willing to pay more for it, producers will add to the supply.

As the supply increases, the price will fall given the same level of demand. Ideally, markets will reach a point of equilibrium where the supply equals the demand (no excess supply and no shortages) for a given price point; at this point, consumer utility and producer profits are maximized.

As demand goes up and a product becomes more scarce the price will go up. Supply will eventually go up because more producers are willing to enter the market since the price is higher. However, the higher prices will hurt demand, and the extra supply and decreased demand will eventually lead to lower prices. The lower prices will increase demand but producers will leave the market since the lower prices are less appealing.

The demand curve shows how much a firm is willing to supply at a particular price, and it also shows the minimum price consumers are willing to pay to buy ‘X’ amount of the good. The supply curve represents how much producers are willing to supply at a particular price and the minimum price producers are willing to accept when selling the good (the minimum price usually reflects a producer’s production cost).

The equilibrium price and quantity of the market should adjust by itself over time. When producers find that their product isn’t selling enough, they will reduce the prices and vice versa. At the equilibrium price, supply = demand which means there is no shortage or surplus. The quantity of a product produced is directly affected by the amount of that product demanded (consumer sovereignty).

Government intervention can affect the equilibrium price and quantity. For example, when the government levies a tax on a good, the demand curve for that good shifts to the left which results in a new and higher equilibrium price. The government can also do the opposite. They can subsidize producers in producing a good which increases supply resulting in a lower equilibrium price and a rightward shift in the demand curve. Note shift means the whole curve moves on the graph, not just sliding up/down a stationary curve.


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