Supply And Demand Analysis To Understand Markets

This assignment is going to make a discussion on demand and supply analysis. This would help in understanding the market operations and economical activities. In this regard, how such analysis impacts on price of good, Polo mint is chosen which is first time manufactured in UK, by Nestle Brand. This peppermint flavoured Polo is introduced in 1948, with a tag line “mint with a hole”. In this report, primarily focus is given on factors that leads to change in demand and supply, as well as how the same impact upon price.

TASK

Supply and demand analysis to investigate and understand the operation of markets

Supply and demand are the most important fundamental concepts of economics, which is considered as backbone of economy also. Here, demand shows how much quantity of a particular product or price is desired by a large group of buyers. It is also defined as amount of products that customers are willing to purchase on a certain price. Therefore, relationship between quantity and price reflects the demand relationship. While, supply of a commodity defines how much a particular market can offer the same (Supply & Demand: How Markets Work, 2015). With this assistance, quantity which is supplied shows amount of a specific good which producers are willing to supply for receiving a particular price. This kind of correlation between price and quality of supply goods is known as supply relationship. Henceforth, price is considered as a reflection of demand and supply, that underlie the forces behind resources' allocation. In this regard, within theories of market economy, supply and demand theory help in allocating resources in most effective and efficient manner (Kugler, 2018). In context with Polo Mint which is a brand of breath mint, changes in demand and supply curve impact upon its price also. This affect can be better illustrated by understanding some basic terminologies of economy. It includes market equilibrium where shift in supply curve or market demand will fluctuate the equilibrium price of Polo Mint.

The demand and supply curve mainly represents the market equilibrium, where intersection of curves shows at which point, quantity of a particular product is supplied to marketplace equals to quantity demanded by customers. In this regard, any changes in pricing strategies leads to create difference between supplied and demanded quantities, either in a surplus or shortage manner (Sodeyfi,  2016) . For an instance, setting up a price of product above market equilibrium will lead to reduce quantity demanded as well as an increase in quantity supplied. This lead to excess supply or supply quantity in a surplus and vice versa.

(Source: Economic Equilibrium. 2016)

Any shifts of market demand or supply curve will lead to make alteration in equilibrium price also. Here, if market demand decreases then equilibrium price will also reduces. This price decrease lead to a movement along supply curve with a reduction in quantity supplied. Therefore, by examining this market demand and supply, it should be kept in mind that there are various factors present in economy that result in impact the outcome of marketplace (Vivchar, 2016). Here, government intervention is considered as best example that results to enactment of price ceilings or price floors. Similarly, there are certain variables for example, price, income, taste, expectation of customers and more impact on demand of a product. While, input price, technology, expectation of sellers and more, create changes in supply.

This figure has illustrated the changes in demand where an increase in demand shift curve towards right and vice versa. Here, on demand side, customers' income plays a significant role in shifting of curve (Joyce and Paquin, 2016). When income rises, consumers will buy more stock of goods and even begin to buy more expensive goods. Therefore, this reflects that price of related commodities like Polo Mint also alter demand. In this regard, shifting demand curve to right will increase the demand of respective marketplace in particular market as well. Similarly, demand of Polo Mint will also reduce if demand curve shift towards left. Some more factors that shift demand curve towards left or right can be better illustrated by following diagram.

Here, it has identified that factors which increases demand curve of a particular product like Polo Mint are- enrichment of taste, customers' willingness to buy on certain price, rise in price of substitute goods, expectations that encourage buying and more, will shift demand curve towards right (Kugler, 2018). All these factors lead to increase demand of commodities as well. Therefore, in this regard, Nestle needs to concern more on quality and taste of Polo Mint for getting high satisfaction of customers, that leads to increase its demand more in marketplace. Similarly, other variables that lead to shift demand curve towards left, which decreases demand are- taste shift to lesser popularity, people likely to buy substitutes, decrease in income level of customers and more. This would impact upon price of Polo Mint and other products as well in negative manner, which affect profitability ratio of business as well.

(Source: Aggregate supply. 2018)

Aggregate supply helps in measuring the volume of particular goods and services. As illustrated in above figure, AS shows ability of an economy for delivering products to meet demand of customers on time. Here, short run AS refers to total planned output where price may change but prices of input factors like wage rates and technology may remains unchanged. While long run AS reflects changes in both prices (Storey, 2016). In this regard, employment cost (employment taxes, wages etc.) is affected by level of labour productivity. In addition to this, exchange rate also affect prices of key imported products. Thus, both factors of short run aggregate supply shifts the position of supply curve and impacts on price of product like Polo Mint also. This would shift supply curve towards left as shown in figure from AS1 to AS2. While within long run aggregate supply, changes in cost of raw materials, production, labour and other inputs, will also affect price of a particular product. It leads to shift supply curve from AS1 to AS3 as illustrated in above diagram. Similarly, some other factors that lead to make changes in supply curve can be shown by below diagram:-  

Here, it has illustrated that favourable natural conditions for production of a good, any fall in input prices or raw materials, improved technologies and less government intervention are major factors that lead to increase supply of commodities. This would lead to shift supply curve towards right and there will be an excessive supply of goods as well (Saleem, 2017). In context with Polo Mint, a increase in supply will impact on its pricing strategies and it may offer the same on less price. It may increase demand of respective products also that helps in reducing demand of substitutes. While, higher production cost, taxes, more regulations, rise in input cost of materials and more, results in decreasing supply as well. This would lead to raise price of products in economy market, which result in decreasing demand of same also.

Thus, through this description, it has identified that all such factors that impact on demand and supply of Polo mint, also effects its pricing strategies (Baker, Bloom and Davis, 2016). Hereby, utility and demand of commodities may affect the price either in high or less manner. Changes in production cost and other input factors directly impact on pricing and other operational activities of a company. Thus, changes in demand and supply will impact upon price of Polo Mint, either negatively or positively. It can be demonstrated by below example:-

It has been interpreted from this figure that, when a market is in equilibrium condition then price of a good or service like Polo Mint will tend to stay the same. As equilibrium state shows the price at which quantity of a product demanded by customers is equal to quantity that is supplied by sellers (Hitt, Xu and Carnes, 2016). However, any changes in demand or supply procedures, leads to make alteration in equilibrium price and quantity also. This would can be demonstrated by taking some examples of changes where any increase or decrease in demand and supply, impact upon price.

This would have shown that an increase in demand of a product causes equilibrium price to raise also. While, a decrease in same result to fall in price also. Other than this, in context with changes in supply curve, it has examined that increase in supply leads to fall in price whereas decrease in same turns to rise in equilibrium.

CONCLUSION

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REFERENCES

• Baker, S. R., Bloom, N. and Davis, S. J., 2016. Measuring economic policy uncertainty. The Quarterly Journal of Economics. 131(4). pp.1593-1636.
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• Joyce, A. and Paquin, R. L., 2016. The triple layered business model canvas: A tool to design more sustainable business models. Journal of Cleaner Production. 135. pp.1474-1486.
• Kugler, J., 2018. Political capacity and economic behavior. Routledge.
• Lloyd-Jones, R. and Lewis, M. J., 2017. Raleigh and the British bicycle industry: an economic and business history, 1870-1960. Routledge.
• Saleem, M. A., 2017. The impact of socio-economic factors on small business success.Geografia-Malaysian Journal of society and space. 8(1).
• Sodeyfi, S., 2016. Review of literature on the nexus of financial leverage, product quality, & business conditions. Journal of Economic & Management Perspectives. 10(2). pp.146-150.
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• Täuscher, K. and Laudien, S. M., 2018. Understanding platform business models: A mixed methods study of marketplaces. European Management Journal. 36(3). pp.319-329.
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• Wang, G. and et. al., 2016. Big data analytics in logistics and supply chain management: Certain investigations for research and applications. International Journal of Production Economics. 176. pp.98-110.

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