Running Head: DEMAND AND SUPPLY 1

Demand and Supply

Student’s Name

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Demand and Supply: ECONOMIC SUPPLY & DEMAND

This paper reviews the article “ECONOMIC SUPPLY & DEMAND” by Joseph Whelan

and Kamil Msefer (Whelan & Msefer, 1996). The article attempts to develop a dynamic model to

demand and supply, which seeks to extend the clarity of the relationship between the two

disciplines. Classical economics provides a comparatively static approach to the interactions

between supply, demand, and price. The article argues that the traditional demand and supply

curve has shown that demand and supply depend on price. At the same time, scarce information

is provided on how the equilibrium was reached or the involved time scales. The researchers

highlighted that classical approaches give rarely explain the effects of inadequate or excess

inventory. The real-world perspective showed that prices of goods in the market are affected by

inventories held by the manufacturer rather than supply rates. A relative assessment of the effect

of stock on price positions a market in equilibrium with surplus inventory held by manufacturers.

In a case of surplus stock, manufacturers strategically lower prices or decrease rates of

production to return their inventory to favorite levels. The researchers suggested a model that

incorporated concepts of classical economics as well as real-word conventions.

Classical information drawn from course reading emphasized the effect of demand on

prices. According to Becker (2017), price is inversely proportional to demand for a constant

supply. The demand curve shows that variations in quantity demand present inverse changes in

the price. The law of demand also posits that a rise in price results in low quantity demand, while

low prices lead to a high quantity demand. The readings also elaborate on the relationships

between price and supply. According to Bhattacharyya (2019), prices are affected by multiple

factors – a factor that detaches the direct effects of supply on the product price. The supply curve

shows zero that a shift in supply causes minimal impact on the price. The dynamists concur with
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the insights of the course reading. However, they believe that the price of products is mainly

affected by its availability rather than production rates. The dynamists explain that a product's

inventory is the primary consideration in setting prices and regulation of demand. The dynamic

model develops a hybrid of the demand curve by introducing dynamic impacts of inventory into

the approach that only used static explanations of demand and supply. Figure 1 shows a

graphical representation of the demand sector.

Figure 1: Demand Sector

The dynamists believed that product demand was dictated by demand-price schedule – a

demand curve that indicated the quantity that consumers were ready to purchase at given prices.

Such demand affected the rate of inventory outflow from the suppliers. The demand also

determined the desired inventory of the suppliers (Whelan & Msefer, 1996). Figure 2 shows a

graphical representation of the resultant demand price schedule. The curve showed the dynamist
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concept shows that consumers willing to buy products when prices are low – a concurrence with

the classical theories.

Figure 2: Demand Price Schedule

The dynamists insist that classical economists failed to address the effects of inadequate

or excess inventory in their explanation of the price and supply relationship (Whelan & Msefer,

1996). The dynamic model highlights these impacts and generates curves to show the variations

in price. The researchers explain that a real-world desired inventory includes the desired period

of coverage plus market demand. Figure 3 shows the supply sector developed by the dynamists.
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Figure 3: Supply Sector

The theorists explain the price is determined by the inventory ratio – an inventory to the

desired inventory ratio(Whelan & Msefer, 1996). A supply price schedule determines the flow of

product supply. The supply price schedule indicates the level at which manufacturers are willing

to produce at a specific price as received from the market. Figure 4 shows the supply price

schedule. The curve is similar to that of classical economists with reversed axes.
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Figure 4: Supply Price Schedule

The article explains that manufacturers become unable to sustain production when prices

are below a specific rate since they cannot handle production costs. Supply increases rapidly at

higher prices. However, additional costs due to increased supply outweigh the benefits of selling

at a higher price. A continued increase in supply would result in an increase in market prices as

justifications for further growth in supply.

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References

Becker, G. S. (2017). Economic theory. Routledge.

Bhattacharyya, S. C. (2019). Energy economics: concepts, issues, markets, and governance.

Springer Nature.

Whelan, J. & Msefer, K. (1996). Economic supply & demand. MIT.