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Demand and Supply Analysis

Published on :

21 Aug, 2024

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Dheeraj Vaidya

What is Demand and Supply Analysis?

The demand and supply analysis focuses on the demand for a product or service and maximum production-distribution capabilities. It highlights the gap between the market's requirements and the fulfillment of goods and services.

This analysis is based on the law of demand and the law of supply. The law of demand explains that the demand for goods is inversely related to their price. The law of supply, on the other hand, states that goods supply is directly related to their price.

Table of contents

Demand-supply analysis explained, applications, frequently asked questions (faqs), recommended articles.

• Demand and supply analysis is the study of price changes with respect to the number of buyers and sellers for a particular product.
• In a state of market equilibrium, the demand curve and the supply curve intersect. At this point, the demand and supply for a commodity are equal.
• The fair price of farm yield is also based on demand-supply. In a perfectly competitive market, farmers are price takers and demand-supply is the price maker. Therefore, governments set a minimum price to protect farmers.

The demand for goods and services signifies the consumers' need, willingness, and ability to buy a particular product. Supply, on the other hand, refers to the production capacity of manufacturers and distributors. A demand and supply analysis is essential to understand the impact of those forces on buyers, sellers, buyer-seller interactions, and prices.

The demand-supply study is based on the laws of demand and supply. The law of demand depicts an inverse relationship between goods price and goods demand. The law of demand renders a downward sloping curve—demand goes up when goods price falls.

If other factors remain constant, the law of supply suggests that an increase in goods price should result in an increase in the supply of goods and vice-versa. It establishes a direct relationship between the price and supply of a commodity—forming an upward curve.

Demand and supply together help determine market conditions and consumer behavior. Thus, understanding economic equilibrium is crucial in economics.

Economic equilibrium or market equilibrium is a point where the demand curve cuts across the supply curve . It is a scenario where the demand for a commodity is equal to its supply. On a graph, it is represented as follows:

However, if demand exceeds supply, then there is a shortage of that product. Also, if supply is higher than demand, there is a surplus.

The demand for a product or service is dictated by various factors—goods price, consumer income, consumer taste, consumer preference, price of related goods, competition, consumer expectations, and income distribution.

Similarly, supply fluctuates due to price changes , fiscal policy, monetary policy, natural disasters, price of production factors, monopoly, climate conditions, infrastructure, and technological advancement.

The most common example of demand and supply is the price fluctuation of securities. Stock market analysts study both the demand and supply of stocks to predict future price trends.

Let us assume that the demand for a particular security is high. In that case, there will be many buyers in the market, and the security will be low in supply (a smaller number of people would be willing to sell the security). Due to the high demand-low supply predicament, the security's price is expected to shoot up.

In contrast, if a stock's demand shows a downfall, a smaller number of people are interested in buying it. Let us assume that its supply is high—many stockholders are willing to sell the shares. In this scenario, the stock price will fall—due to surplus supply. 

In economics , the demand-supply study elucidates the dynamics between buyers and sellers (in a free market). Other applications are as follows:

Price Control : When at war, governments use demand-supply analysis to set a price ceiling for each product. The price ceiling is the maximum price of essential goods or services. In order to ensure public wellbeing during pressure situations, this price is kept lower than the equilibrium price.  

Housing Rent Control : Here, the government ascertains a maximum rental price that can be charged to tenants for occupying houses for rent. Again, the set limit is below the equilibrium for housing rent price. This is done to safeguard lower or middle-income tenants from exploitation.

Taxation : The analysis considers the impact of direct and indirect taxes on consumers. When indirect taxes are raised, consumers are burdened. It results in a shift in demand and supply curves.

Subsidy : To encourage a particular commodity, the government offers subsidies to manufacturers. Such grants decrease the price of that particular good or service. As a result, there is an increase in both demand and supply.

Farm Product Pricing : The fair price of farm yield is also based on demand-supply. In a perfectly competitive market, farmers are price takers, and market forces (demand and supply) are the price makers. However, the government sets a minimum price to protect farmers from losses.

Black Market Identification : Black marketers flourish when demand for a commodity is high but the supply is low. They sell products at a price higher than the ceiling price. The demand and supply study reveals such practices.

Minimum Wage Legislation : State governments undertake such analyses of labor markets to determine minimum wages. A minimum wage cap protects employees and laborers from exploitation.

Consumer Surplus and Producer Surplus : A demand-supply study explains the consumer surplus—the gap between the amount consumers are willing to pay and the actual amount paid for a particular commodity. The study also sheds light on the producer surplus —the amount at which producers were ready to sell and the actual selling price.

If the demand for a commodity exceeds the quantity supplied, then there is a shortage of that commodity in the market. This shortage results in a price rise. In contrast, if supply surpasses demand, there is a surplus of that product—resulting in a price fall.

The price of a product or service is the major factor causing demand and supply changes. Other factors include consumer income, customer preference, price of related goods, competition, consumer expectations, fiscal policy, monetary policy, price of production factors, monopoly, climate conditions, infrastructure, and technology.

The law of demand states that when commodity prices increase, their demand decreases. In contrast, the law of supply states when commodity prices increase, its supply also increases.

This has been a guide to what is Demand and Supply Analysis & definition. We discuss Demand and Supply Analysis meaning, graph, application, & examples. You can learn more about it from the following articles - 

• Derived Demand
• Determinants of Demand
• Joint Supply

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Demand curve

Supply curve.

• Market equilibrium, or balance between supply and demand

supply and demand

supply and demand , in economics , relationship between the quantity of a commodity that producers wish to sell at various prices and the quantity that consumers wish to buy. It is the main model of price determination used in economic theory. The price of a commodity is determined by the interaction of supply and demand in a market . The resulting price is referred to as the equilibrium price and represents an agreement between producers and consumers of the good. In equilibrium the quantity of a good supplied by producers equals the quantity demanded by consumers.

The quantity of a commodity demanded depends on the price of that commodity and potentially on many other factors, such as the prices of other commodities, the incomes and preferences of consumers, and seasonal effects. In basic economic analysis, all factors except the price of the commodity are often held constant; the analysis then involves examining the relationship between various price levels and the maximum quantity that would potentially be purchased by consumers at each of those prices. The price-quantity combinations may be plotted on a curve, known as a demand curve , with price represented on the vertical axis and quantity represented on the horizontal axis. A demand curve is almost always downward-sloping, reflecting the willingness of consumers to purchase more of the commodity at lower price levels. Any change in non-price factors would cause a shift in the demand curve, whereas changes in the price of the commodity can be traced along a fixed demand curve.

The quantity of a commodity that is supplied in the market depends not only on the price obtainable for the commodity but also on potentially many other factors, such as the prices of substitute products, the production technology, and the availability and cost of labour and other factors of production . In basic economic analysis, analyzing supply involves looking at the relationship between various prices and the quantity potentially offered by producers at each price, again holding constant all other factors that could influence the price. Those price-quantity combinations may be plotted on a curve, known as a supply curve , with price represented on the vertical axis and quantity represented on the horizontal axis. A supply curve is usually upward-sloping, reflecting the willingness of producers to sell more of the commodity they produce in a market with higher prices. Any change in non-price factors would cause a shift in the supply curve, whereas changes in the price of the commodity can be traced along a fixed supply curve.

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What Is the Law of Supply and Demand?

The law of supply and demand combines two fundamental economic principles that describe how changes in the price of a resource, commodity, or product affect its supply and demand. Supply rises while demand declines as the price increases. Supply constricts while demand grows as the price drops.

Levels of supply and demand for varying prices can be plotted on a graph as curves. The intersection of these curves marks the equilibrium or market-clearing price at which demand equals supply and represents the process of price discovery in the marketplace.

Key Takeaways

• The law of demand holds that the demand level for a product or a resource will decline as its price rises and rise as the price drops.
• The law of supply says that higher prices boost the supply of an economic good and lower ones tend to diminish it.
• A market-clearing price balances supply and demand and can be graphically represented as the intersection of the supply and demand curves.
• The degree to which changes in price translate into changes in demand and supply is known as the product's price elasticity.
• Demand for basic necessities is relatively inelastic. It's less responsive to changes in their price.

Investopedia / Alex Dos Diaz

Understanding the Law of Supply and Demand

It may seem obvious that the price satisfies both the buyer and the seller in any sale transaction, matching supply with demand. The interactions between supply, demand, and price in a free marketplace have been observed for thousands of years.

Many medieval thinkers distinguished between a "just" price based on costs and equitable returns and one at which the sale was transacted, just like modern-day critics of market pricing for select commodities.

Our understanding of price as a signaling mechanism matching supply and demand is rooted in the work of Enlightenment economists who studied and summarized the relationship.

Supply and demand don't necessarily respond to price movements proportionally. The degree to which price changes affect the product's demand or supply is known as its price elasticity.

Price discovery based on supply and demand curves assumes a marketplace in which buyers and sellers are free to transact or not depending on the price.

Products with a high price elasticity of demand will see wider fluctuations in demand based on the price. Basic necessities will be relatively inelastic in price because people can't easily do without them so demand will change less relative to changes in the price.

Factors such as taxes and government regulation, the market power of suppliers, the availability of substitute goods, and economic cycles can all shift the supply or demand curves or alter their shapes. However, the commodities affected by these external factors remain subject to the fundamental forces of supply and demand as long as buyers and sellers retain agency.

The law of demand holds that demand for a product changes inversely to its price when all else is equal. The higher the price, the lower the level of demand.

Buyers have finite resources so their spending on a given product or commodity is limited as well. Higher prices reduce the quantity demanded as a result. Demand rises as the product becomes more affordable.

Changes in demand levels as a function of a product's price relative to buyers' income or resources are known as the income effect .

But some exceptions exist. One is Giffen Goods . These are typically low-priced staples also known as inferior goods . They're those who see a drop in demand when incomes rise because consumers trade up for higher-quality products.

The substitution effect turns the product into a Giffen good when the price of an inferior good rises and demand goes up because consumers use more of it in place of costlier alternatives.

Veblen goods are at the opposite end of the income and wealth spectrum. They're luxury goods that gain in value and consequently generate higher demand levels as they rise in price because the price of these luxury goods signals and may even increase the owner's status.

Veblen goods are named for economist and sociologist Thorstein Veblen who developed the concept and coined the term "conspicuous consumption" to describe it.

The law of supply relates price changes for a product to the quantity supplied. The law of supply relationship is direct, not inverse. The higher the price, the higher the quantity supplied . Lower prices mean reduced supply all else being equal.

Higher prices give suppliers an incentive to supply more of the product or commodity, assuming their costs aren't increasing as much. Lower prices result in a cost squeeze that curbs supply. Supply slopes are upwardly sloping as a result.

As with demand, supply constraints may limit the price elasticity of supply for a product. Supply shocks can cause a disproportionate price change for an essential commodity.

Also called a market-clearing price, the equilibrium price is that at which demand matches supply, producing a market equilibrium that's acceptable to buyers and sellers.

Supply and demand in terms of the quantity of the goods are balanced at the point where an upward-sloping supply curve and a downward-sloping demand curve intersect leaving no surplus supply or unmet demand.

The level of the market-clearing price depends on the shape and position of the respective supply and demand curves, which are influenced by numerous factors. 

Supply will tend to decline toward zero at product prices below production costs in industries where suppliers aren't willing to lose money.

Price elasticity will also depend on the number of sellers, their aggregate productive capacity, how easily it can be lowered or increased, and the industry's competitive dynamics . Taxes and regulations may matter as well.

Consumer income, preferences, and willingness to substitute one product for another are among the most important determinants of demand.

Consumer preferences will depend in part on a product's market penetration because the marginal utility of goods diminishes as the quantity owned increases. The first car is more life-altering than the fifth addition to the fleet. The living room TV is more useful than the fourth one for the garage.

What Is a Simple Explanation of the Law of Supply and Demand?

Higher prices cause supply to increase as demand drops. Lower prices boost demand while limiting supply. The market-clearing price is one at which supply and demand are balanced.

Why Is the Law of Supply and Demand Important?

The law of supply and demand is essential because it helps investors, entrepreneurs, and economists understand and predict market conditions. A company that's considering a price hike on a product will typically expect demand for it to decline as a result and will attempt to estimate the price elasticity and substitution effect to determine whether to proceed.

What Is an Example of the Law of Supply and Demand?

Gasoline consumption plunged with the onset of the COVID-19 pandemic in 2020 and prices quickly followed because the industry ran out of storage space. The price decline in turn served as a powerful signal to suppliers to curb gasoline production. Crude oil prices in 2022 then provided producers with additional incentive to boost output.

The law of supply and demand reflects two central economic principles that describe the relationship between price, supply, and demand.

The law of demand posits that demand declines when prices rise for a given resource, product, or commodity. Demand increases as prices fall. On the supply side, the law posits that producers supply more of a resource, product, or commodity as prices rise. Supply falls as prices fall.

The price at which demand matches supply is the equilibrium, the point at which the market clears. The law of supply and demand is critical in helping all players within a market understand and forecast future conditions.

SSRN. " The First Laws in Economics and Indian Economic Thought – Thirukkural ."

JSTOR. " The Concept of the Just Price: Theory and Economic Policy. "

Thorstein Veblen, via The Mead Project. " Conspicuous Consumption ." Chapter 4 in The Theory of the Leisure Class: An Economic Study of Institutions.  The Macmillan Company, 1899, pp. 68-101.

Trading Economics. " Crude Oil ."

U.S. Bureau of Labor Statistics. " From the Barrel to the Pump: the Impact of the COVID-19 Pandemic on Prices for Petroleum Products ."

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Supply And Demand Analysis: Definition, Importance, And Framework

Supply and demand analysis is an essential tool for businesses of all sizes. It enables them to better understand the market forces that drive their industry, allowing them to make data-driven decisions that can help them maximise profits and minimise losses. But what exactly is supply and demand analysis? In this blog post, we’ll explore the definition of this important concept, its importance in today’s business landscape, and a framework to apply it effectively. Read on to learn more!

Check out our Advanced Executive Certificate in Supply Chain Strategy and Operations Management to learn detailed supply and demand analysis.

What is Supply and Demand Analysis?

Supply and demand analysis studies how prices change in response to the availability of goods and services. It is a key tool used by economists to understand the behaviour of businesses and consumers.

The basic idea behind supply and demand analysis is that prices are determined by the interaction between buyers and sellers in the marketplace. The amount of a good or service buyers can buy at a given price is known as demand. The number of goods or services sellers can supply at a given price is known as supply.

Changes in either supply or demand can lead to changes in prices. An increase in supply, all else being equal, will lead to lower prices. Demand increases, all else being equal, will lead to higher prices. A decrease in either demand or supply will have the opposite effect on prices.

Supply and demand analysis is often used to help explain economic phenomena such as inflation, unemployment, and economic growth. It can also be used to predict how changes in economic conditions might impact prices.

How Does Supply And Demand Analysis Work?

Supply and demand analysis is a powerful tool to help you understand how your business works. By analysing the factors that affect supply and demand, you can make informed decisions about pricing, production, and other essential aspects of your business.

To perform a supply and demand analysis, you need to understand the basic concepts of supply and demand. The supply and demand law is a fundamental economic principle that explains the interaction between buyers and sellers in the marketplace. The law of supply and demand is supported by the following four principles:

• There is a relationship between price and quantity.
• The connection decides the price of goods or services between supply and demand in the market.
• The market equilibrium occurs when the quantity demanded equals the quantity supplied.
• Changes in market conditions can cause shifts in the equilibrium price and quantity.

Supply is the number of goods or services available for sale at a given price. Demand refers to the number of goods or services consumers purchase at a given price. The law of supply and demand states that when there is more demand for a good or service than there is supply, the price of the good or service will increase. Conversely, the price will decrease when there is more supply than demand.

What is The Importance of Supply and Demand Analysis?

Supply and demand analysis is a basic economic tool used to understand the market’s relationship between buyers and sellers. It can be used to determine the prices of goods and services in a market and understand the forces influencing them.

Demand analysis looks at how much of a good or service people are willing to buy at different prices. This information can be used to understand consumer behaviour and make decisions about pricing and production.

Supply analysis looks at how much of a good or service producers can supply at different prices. This information can be used to understand business behaviour and make decisions about pricing and production.

The interaction between supply and demand decides the price of goods and services in a market. If there is more demand than supply, the price will increase. If there is more supply than demand, the price will decrease.

The importance of supply and demand analysis lies in its ability to help decision-makers understand market conditions and make informed decisions about pricing, production, and other factors that influence market performance.

 Benefits of Supply And Demand Analysis

• Improved Pricing : Supply and demand analysis can be used to set accurate prices for goods and services, helping businesses maximise profits while ensuring customers get a good deal.
• Better Forecasting : With the help of supply and demand analysis, businesses can predict future trends in their market with great accuracy, allowing companies to plan efficiently so as not to miss out on opportunities or fall behind competitors. 
• Maximizing Profits : By understanding the relationship between supply and demand, businesses are better equipped to adjust their operations accordingly to take full advantage of economic conditions – both short-term spikes and long-term changes – which may result in increased profits. 
• Increased Efficiency : Through analysing supply and demand dynamics, businesses can identify areas where they may need fewer resources (people/money) than currently allocated, leading them to become more efficient with their use of capital. This also allows firms to reduce costs without harming sales or customer satisfaction levels. 
• Reduced Risk : Companies that accurately forecast future trends are far less likely to suffer from sudden drops in sales due to unexpected changes in the marketplace, enabling them to make necessary adjustments before problems arise rather than after it’s too late! 
• Enhanced Customer Service Levels : When business owners understand how pricing affects consumers’ buying decisions, they can make more informed decisions about what items should be discounted at certain times throughout the year, allowing them to provide maximum value for money at all times whilst still delivering an excellent level of service overall!

How Can Supply and Demand Analysis Help the Economy?

Supply and demand analysis is a powerful tool for understanding the behaviour of markets, prices, and economies. It allows us to analyze how changes in the supply or demand of goods and services affect the economy. Supply and demand analysis can help governments set sensible policies by allowing them to understand better how different factors might affect market conditions in their countries. 

For example, they can use this knowledge to determine what taxes should be imposed on goods or services that are in high demand or scarce supply to encourage more efficient production while still providing consumers with an adequate amount of goods at reasonable prices. 

Furthermore, businesses also benefit from using supply and demand analysis when deciding on pricing strategies. 

They assess whether increasing prices will lead customers away from buying their products due to increased cost; if so, then adjusting price levels may be necessary for sales growth over time. In addition, companies examine elasticity – which measures how responsive people are to changes in price – before choosing marketing strategies that work best for their target audiences.

Overall, supply and demand analysis is essential because it helps both governments and businesses create effective economic policies that promote long-term stability through the balanced distribution of resources across society’s needs.

Read More: What is Supply Chain Finance? A Detailed Analysis

Supply And Demand Analysis Framework

The supply and demand analysis framework is a commonly used tool for analysing economic trends, market conditions, and consumer behaviour. This framework provides an empirical perspective on understanding the dynamics of markets and how buyers and sellers shape them. The basic premise of supply and demand analysis is the interaction between buyers and sellers determines the price and quantity in any given market. 

To understand these interactions, it is necessary to consider factors such as production costs, changes in consumer preferences or tastes, availability of substitutes or complementary goods/services, government policies related to pricing or trade barriers etc.

At its core, supply-demand analysis uses two curves: one representing the quantity demanded (demand curve) versus price; another representing the cost associated with producing each additional unit (supply curve). 

Together these curves allow us to identify equilibrium points where both sides have reached their respective goals – i.e., where producers have maximized profit by meeting consumer needs at acceptable prices. By studying shifts along either curve due to changes in underlying variables, we can better understand why certain markets behave in certain ways under different circumstances.

Finally, this approach also allows us to make predictions about future outcomes based on current data points – allowing firms/governments alike to develop plans for long-term growth or mitigation strategies based on expectations about the future states of different markets within their specific context.

How Does Supply And Demand Analysis Framework Work?

The Supply and Demand Analysis framework uses the principles of economics to explain how buyers and sellers interact in a market. The basic concept is that prices will either increase or decrease accordingly when there is an imbalance in demand for a product or service.

1) Supply : This refers to how much of a good or service suppliers are willing and able to produce at different prices. It depends on factors such as technology, cost of inputs, taxes, subsidies etc.

2) Demand : This refers to how many people want (or ‘demand’) a certain good or service at different prices. It depends on income levels, tastes/preferences, price expectations etc. 

3) Equilibrium Price & Quantity : These are the balance points where supply equals demand – i.e., quantity supplied by producers matches what consumers can acquire at that given price level. When this equilibrium is disturbed through an event such as increased production costs or higher consumer incomes, new equilibriums need to be established, leading to adjustments in both price & quantity demanded/supplied until the balance is restored.

4) Elasticity Of Supply And Demand : This measures the sensitivity of changes in demand and supply due to external factors like taxes & subsidies, which affects the pricing decisions of both buyers & sellers. Generally, if one increases while the other decreases, it causes a larger change than vice versa resulting in changes in equilibrium quantities & prices over some time.

Different Methods of Demand and Supply Analysis1

• Identify the Market : The first step in supply and demand analysis is to identify the market of interest. This could include tracking a particular product or industry, studying a specific geographic region where goods are traded, or monitoring an entire economic sector.
• Gather Data : Once the market has been identified, data needs to be gathered about both supply and demand for that good or service within that market. This data can come from various sources, including government reports, trade publications, company earnings reports and surveys of consumers’ buying habits.
• Analyze Supply : Supply analysis involves looking at production costs such as labour inputs and raw material prices as well as other factors such as transportation costs which affect how much a producer can make on any given item before losing money on it. By understanding these cost structure elements, one can better predict how producers will respond to price-level changes over time by either increasing or decreasing their production level accordingly.
• Evaluate Demand : On the demand side, numerous factors must be considered when conducting an analysis, including consumer preferences and income levels, along with political stability in countries where goods may be sold abroad, among others, if applicable.
• Compare Supply & Demand Factors : Using all of this collected information, it should then become possible for analysts to compare various supply-side characteristics with those found on the demand side. So predictions regarding future price movements can begin based on trends found throughout each respective factor associated with them.
• Monitor Results & Adjustments : Finally, once initial forecasts have been put together, it is important for analysts not just stop there but rather continue tracking results ongoing so any adjustments needed going forward can be quickly applied if necessary to keep projections updated accurately over time.

Latest Trends in Supply and Demand Analysis

• Big Data Analytics : With the help of big data analytics, companies can now understand supply and demand patterns in real time, enabling them to adjust their strategies accordingly quickly. This gives them a competitive advantage over those still relying on traditional methods.
• Predictive Modeling : Predictive modelling is used to identify future trends in supply and demand by analysing past behaviours and current market conditions. Companies use this technique to make more informed decisions about how much product they need to produce or purchase and when it’s most advantageous for them to do so. 
• Automated Demand Planning : Automated demand planning systems enable businesses to accurately forecast customer demands based on historical sales figures and external factors such as seasonality, weather, economic indicators etc. These systems also allow companies to simulate different scenarios to optimise production levels across multiple locations.
• Supply Chain Visibility : This trend focuses on ensuring that all participants throughout the supply chain have visibility into inventory levels at any given time, along with access to key performance metrics like delivery times or cost per unit shipped etc. 
• Agile Inventory Management : The concept behind agile inventory management is that instead of having large amounts of stock sitting idle waiting for orders, inventory is better managed through just-in-time techniques, which involve replenishing small stocks at regular intervals. This helps businesses reduce storage, transportation and waste costs while ensuring there’s always enough stock available to meet customers’ needs without overstocking.

What The Future Awaits For Supply and Demand Analysis?

The future of supply and demand analysis lies in leveraging advanced technologies to make decisions that lead to a more efficient and profitable market. As the world becomes increasingly connected, data collection will become easier and more accurate than ever before, thus providing better insights into how customers interact with products or services. This will enable companies to anticipate customer needs better, identify new markets for their offerings, and adjust pricing strategies accordingly.

Read More: What is Supply Chain Visibility? 10 key points

In addition, artificial intelligence (AI) algorithms such as Machine Learning (ML) can help in automating many aspects of supply chain management . AI systems can monitor global market trends by gathering data from multiple sources, allowing companies to respond quickly to changes. 

Furthermore, AI-based predictive analytics can provide real-time predictions about customer behaviour, allowing businesses to proactively create strategies that maximise profits while minimising losses due to unexpected shifts in market conditions. 

Lastly, blockchain technology is also set to revolutionise supply chain management and help streamline processes like tracking goods through the system. Creating an immutable record of transactions linked together through cryptography makes it much harder for fraudulent activities such as counterfeiting or double spending money from the same source possible within a given networked environment. 

The transparency provided by blockchain would also help reduce costs associated with manual record-keeping by cutting out intermediaries who needlessly add complexity and cost throughout the process without adding value.

Overall these advancements have created vast opportunities for businesses seeking competitive advantage over their competitors through improved efficiency of operations.

Overall, supply and demand analysis is a crucial tool for understanding the market dynamics of a given product. It helps to identify trends in pricing, production levels and other factors affecting the balance between buyers and sellers. By using this framework, businesses can identify ways to maximize profits while providing services or products that meet the needs of consumers. A thorough grasp of what drives supply and demand will allow businesses to make more informed decisions about their operations.

The Advanced Executive Certificate in Supply Chain Strategy and Operations Management can provide a comprehensive supply and demand analysis overview. You will learn about the different monitoring methods, analyzing, forecasting, and optimizing your supply chain to ensure maximum efficiency. Additionally, this program offers insight into how to manage risks associated with a fluctuating demand environment. With guidance from experts in the field, you will gain valuable knowledge essential for successful supply chain management.

More Information: 

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Supply and Demand Essay

In economics, the terms “Supply” and “Demand” are of fundamental importance to the discipline because they are the factors that drive all other related activities of the economy. Argumentatively, although the field is broad and these two are like the pillars that hold together everything else in place, the exchange of goods and services from the seller side and the buyer’s side. Simply put, the demand covers the customer side while the supply side covers the seller’s side, who provide the goods or service. So, this, paper will discuss in detail the two terms and extensively cover what they mean in the context of economic transactions and how they relate. Also, the paper will seek to explore the shifts in demand and supply; because they are not static but are subject to changes of either going up or going down- for both depending on various factors that will form part of the subsequent discussions of this paper.

At this point, it is important to note while they are closely related, it is not automatic that an increase will one will cause the same reaction for the other. Each independently responds differently to certain factors. However, in a state of equilibrium, the shifts are similar where if demand, increases the seller responds also by increasing their goods or services(Bas, et al. 4). For each, the discussions will revolve around meaning, application in the real-life, and the relationship with the causal agents that leads to particular changes. The figure below shows the relationship between demand and supply that will guide the subsequent discussions.

Figure 1 Relationship between Demand and Supply

Demand in the field of economics refers to the total amount of goods or services that consumers are able and willing to pay for it when it is at that price. In practice, demand is usually different at each price level which is the main factor that influences the patterns of consumers’ behavior. The price is used as the reference point of explanation because it usually reflects the value of a product and its utility preference to the buyer. In particular, just how much is a customer willing to pay and what amount of the product or service do they want for it at that price is what demand is all about(Bas, et al. 11). In some of the cases, a customer attending a fair on a hot day may be willing to pay more for a glass of lemonade than if they had attended the fair when the weather was cold. So, demand is the total amount of product that a consumer will be expecting in return for money of a certain value.

At different prices, the quantity will change because of the different factors mentioned in the subsequent parts of the paper. From this example, it is clear that the demands thus also exist at different levels; the first is the market demand for the product itself in the economy and the second is the aggregate collective demand of all the products that exist in the market for that economy. In the first level, the focus is the product itself in the context of the consumer, and for the second, it is all the products that are present in that specific jurisdiction. A good example is a demand for a GTI muscle automobile in the US may be 15 % while the demand for all cars in the US is 56%. Therefore, in the first example, the particular product is assessed individually within the context of the market while in the second level it is all products that the same, i.e. cars, that are calculated.

Supply, on the other hand as aforementioned represents the other side of the economic transaction divide, the suppliers. The suppliers’ framework is overly broad and is used to refer to all such factors that are elements of production including labor, money, and companies that collectively produce the goods to the buyer. Supply: therefore, this definition refers to the total amount of goods and services that the supplier is willing to produce and offer to the market at a certain price (Moheb-Alizadeh and Handfield 5). Using the earlier example, now the seller of the lemonade at the fair is willing to make a certain amount of the drink for the market at a particular price. So, for example, if the fair is hosted on a sunny day, the price is higher and thus he or she may be willing to produce more lemonade for the fairgoers. However, on a cold day when the price of the lemonade is lower, he may only be willing to produce a lower amount of lower to reduce. The price is used as the central incentive in an economy that is why in both cases it is the principal elements that are used to define both supply and demand. As stated earlier, the movements are not static but rather shift according to different factors.

The shifts in the demand and supply of the goods and services for a particular product is dependent primarily on the prices of the inputs that are used in the production of the goods and services such as labor, raw materials, tariffs attached to the product and technical resources involved in the production. Similarly, for the demand for a good or service shifts according to the prices set for the product or service (Mankiw 54). When the prices are higher and other factors remain constant regarding the product, the demand reduces and when the prices reduce, the demand increases. From this point of view, it is accurate to hypothesize that demand and supply shifts according to how the prices move when all other factors remain constant.

Works Cited

Bas, M., et al. “From micro to macro: Demand, supply, and heterogeneity in the trade elasticity.”  Journal of International Economics , vol. 108, 2017, pp. 1-19, doi:10.1016/j.jinteco.2017.05.001.

Mankiw, N. G.  Essentials of economics . Cengage Learning, 2020.

Moheb-Alizadeh, H., and R. Handfield. “Developing talent from a supply–demand perspective: An optimization model for managers.”  Logistics , vol. 1, no. 1, 2017, p. 5, doi:10.3390/logistics1010005.

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Oil Market: Demand and Supply Analysis Essay

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Introduction

The changes in the oil market are highly dependent on the social, economic, and political environment in the country and world. A article analyzes the quarterly results and expectations of oil demand and supply.

In general, it confirms that the total energy consumption in the US has declined, although, on a quarter-to-quarter basis, it increased by 8.4 million barrels per day (mbd). In terms of the product, the demand for gasoline fell by 1 mbpd, reflecting the drop in the number of total vehicle miles traveled in the country’s territory. Jet fuel also decreased by 46 percent year on year, which is connected to air travel restrictions as a result of the COVID-19 breakout. At the same time, compared to the US, the Chinese oil market is experiencing a more steady recovery. Year-to-August data demonstrate that the oil demand declined by 6 percent. In Europe, despite its effective lockdown measures, the decrease is estimated at 13 percent in Q3. Finally, India experienced a dramatic decline of 21 percent year on year. Therefore, these regions were affected by the recent events in a different way.

In terms of supply, OPEC and partners continue to exhibit high compliance, which is estimated at 100 percent on average; however, the situation varies in different regions. In China, oil imports have increased by 18 percent, which can be connected to its post-lockdown measures and the typical strategy of large-scale oil purchasing for economic recovery reasons. In Nigeria and Iraq, the largest oil suppliers, there was also a significant increase in compliance. The additional 1.9 mbpd is expected to be added in January of the upcoming year. Even though the oil production is not restored in many regions yet, it is currently estimated at 600 tbpd, compared to 150 tbpd output in September.

To conclude, the statistics show the global decrease in oil demand and supply with slight variations in different regions. However, it is expected that in the majority of countries, such as China, European states, and Arabic oil suppliers, the production and demand will improve during the next year. The forecast for the US suggests that its supply and demand situation can be affected by the upcoming elections. Therefore, these results prove that the oil demand and supply depend on each country’s lockdown measures, political and social situation, and oil-related policies.

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IvyPanda . "Oil Market: Demand and Supply Analysis." February 21, 2022. https://ivypanda.com/essays/oil-market-demand-and-supply-analysis/.