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COX’S BAZAR INTERNATIONAL

UNIVERSITY

Assignment on:
Balancing of demand & supply &their
impact on price
Submitted To :
Adita Barua
Assistant Lecturer
Faculty of Business Administration
Cox’s Bazar International University

Submitted By :
Abdullah Bin Omar
ID: 180090100268
Department of Business Administration
9thBatch,
5thSemester.

Date of Submission: 30/05/2020


Contents
Balancing of demand & supply &their impact on price
........................................................................................1
Abstract..........................................................................3
Introduction...................................................................3
The Influencing Factors of Demand............................3
The Influencing Factors of Supply..............................4
How price of a product is determined...........................4
Factors affecting Determination of Prices....................5
3] The extent of Competition in the Market..............5
4] Government and Legal Regulations......................5
5] Pricing Objectives.................................................5
6] Marketing Methods Used......................................5
Determination of Equilibrium Price.............................5
Price of product depends on demand & supply of
product...........................................................................6
Conclusion.....................................................................7
Abstract
Balancing of demand & supply & their impact on price, if there is a decrease in supply of
goods and services while demand remains the same, prices tend to rise to a higher
equilibrium price and a lower quantity of goods and services.
However, when demand increasesand supply remains the same, the higher demand leads to a
higher equilibrium price and vice versa. Price changes in any market are essentially due to
shifts in supply relative to demand. In a global market there can be several simultaneous
supply and demand shifts in different geographical locations, all affecting prices to different
extents.

Introduction
The market is an amazing instrument, it enables people who have never met and who know
nothing about each other to interact and do business. Supply & demand is perhaps one of the
most fundamental concepts of economics and it is the backbone of a market economy. The
two basic terms used most often by economists are supply and demand. The amount of
something that is available – the supply – and the amount of something that people want – the
demand – make up a working market. The market is the way in which an economic activity is
organized between buyers and sellers through their behavior and interaction with one another.
Buyers, as a group, determine the overall demand for a particular product at various prices
while sellers, as a group, determine the supply of a particular product at various prices.
• Demand refers to how much (quantity) of a product or service is desired by buyers. The
quantity demanded is the amount of a product people are willing to buy at a certain price; the
relationship between price and quantity demanded is known as the demand relationship.
• Supply represents how much the market can offer. The quantity supplied refers to the
amount of a certain good producers are willing to supply when receiving a certain price. The
correlation between price and how much of a good or service is supplied to the market is
known as the supply relationship.

The Influencing Factors of Demand


The demand changes as a result of changes in price, other factors determining it being held
constant. We shall explain below in detail how these other factors determine market
demand for a commodity. These other factors determine the position or level of demand
curve of a commodity.

1.  Tastes and Preferences of the Consumers


2.  Income of the People
3.  Changes in Prices of the Related Goods
4.  Advertisement Expenditure
5.  The Number of Consumers in the Market
6. Consumers’ Expectations with Regard to Future Prices

The Influencing Factors of Supply


Supply can be influenced by a number of factors that are termed as determinants of supply.
Generally, the supply of a product depends on its price and cost of production. In simple
terms, supply is the function of price and cost of production.
Some of the factors that influence the supply of a product are described as follows:

1.Price:
2.  Cost of Production
3. Natural Conditions
4. Technology
5. Transport Conditions
6. Factor Prices and their Availability
7. Government’s Policies
8. Prices of Related Goods

How price of a product is determined


The price of a product is determined by the law of supply and demand. Consumers have a
desire to acquire a product, and producers manufacture a supply to meet this demand. The
equilibrium market price of a good is the price at which quantity supplied equals quantity
demanded. Prices should be determined by the market. The answer is correct enough, but
some elaboration is necessary to answer the practical problem concerning the wisdom of
government price control. Let us begin on the elementary level and say that prices are de-
termined by supply and demand. If the relative demand for a product increases, consumers
will be willing to pay more for it. Their competitive bids will both oblige them individually to
pay more for it and enable producers to get more for it. This will raise the profit margins of
the producers of that product. This, in turn, will tend to attract more firms into the
manufacture of that product, and induce existing firms to invest more capital into making it.
The increased production will tend to reduce the price of the product again, and to reduce the
profit margin in making it. The increased investment in new manufacturing equipment may
lower the cost of production. Or—particularly if we are concerned with some extractive
industry such as petroleum, gold, silver, or copper—the increased demand and output may
raise the cost of production. In any case, the price will have a definite effect on demand,
output, and cost of production just as these in turn will affect price. All four—demand,
supply, cost, and price—are interrelated. A change in one will bring changes in the others.
There are a variety of different types of pricing strategies in business. However, there's no
one surefire, formula-based approach that suits all types of products, businesses, or markets.
Pricing your product usually involves considering certain key factors, including pinpointing
your target customer, tracking how much competitors are charging, and understanding the
relationship between quality and price. Determination of Prices means to determine the cost of
goods sold and services rendered in the free market. In a free market, the forces of demand and
supply determine the prices. The Government does not interfere in the determination of the
prices. However, in some cases, the Government may intervene in determining the prices. For
example, the Government has fixed the minimum selling price for the wheat.

Factors affecting Determination of Prices

The factors which affect the price determination of the product are:

1] Product Cost
2] The Utility and Demand
3] The extent of Competition in the Market
4] Government and Legal Regulations
5] Pricing Objectives
6] Marketing Methods Used

Determination of Equilibrium Price

The price that makes demand equivalent to supply is called the equilibrium


price. Graphically, it can be said that the equilibrium price is the point where the
demand curve and supply curve intersect. It is the price at which there is no
unsold stock left neither is any demand unfulfilled. Thus, it is also known as the
market clearing price.
Once the Equilibrium price and quantity are reached, we attain Stable
Equilibrium. Stable equilibrium adjusts any disturbance in the demand and
supply and restores the original equilibrium.
Other things remaining the same, when the price falls below the equilibrium
price, the demand increases and supply decreases. There arises a shortage of
goods which in turn increases the price to equilibrium price.

Price of product depends on demand & supply of


product
Price sensitivity can change over time based on a number of factors including changes in the
economic environment, competition or demand. Factors other than price, such as quality,
service, and uniqueness, can also influence price sensitivity. Those factors include the
offering's costs, the demand, the customers whose needs it is designed to meet, the external
environment—such as the competition, the economy, and government regulations—and other
aspects of the marketing mix, such as the nature of the offering, the current stage of its
product life cycle. One of the most simple ways to price your product is called cost-
plus pricing. Cost-based pricing involves calculating the total costs it takes to make your
product, then adding a percentage markup to determine the final price. Influences on Prices.
As the chart suggests, prices that farmers receive for their commodities and other products
depend on supply and demand factors. The amount of output available from other farmers,
from imports, or the extent to which other products represent good substitutes affect the
supply side. Demand for the product can ultimately be traced back from the consumer
through the value chain. Manufacturers will base their orders on expectations of demand. If
demand is expected to be high, prices will tend to rise; if less demand is expected, prices are
more likely to decrease.

Most retailers, with the exception of “giants” such as Wal-Mart, will tend to order through a
wholesaler. The wholesaler must anticipate the demand from retailers and have stock on hand
to meet this demand.

Bargaining Power of Farmers. Farmers, who sell commodities in relatively small quantities,
ordinarily have very little bargaining power. Since the same commodity from different
farmers is considered identical, the farmer can in theory sell all his or her product at the
market price but cannot sell at a higher price. In practice, however, many of today’s
commodities transactions take place electronically and/or through brokers. This means that
there may not be reliable information about market prices available and that the buyer will
have the upper hand in negotiations. The farmer could try to get bids from different buyers,
but that will take a great deal of time away from the farmer’s work of actually producing
crops. So it is true that product prices are depends on demand & supply.

Conclusion
In this assignment, we've discussed fundamental concepts in economics - supply and demand.
Hopefully the forces that cause changes in supply and demand aren't mysterious anymore.
The balancing of demand & supply on impact on price
The law of demand describes the behavior of buyers. In general, people will demand - that is
buy - more of a good or service at lower prices than at higher prices. When this relationship is
graphed, the result is a demand curve.
A change in price results in movement along the demand curve from one point to another and
is called a change in the quantity demanded. When other factors in the market change, the
demand curve shifts to the left or the right. This is a change in demand.
The law of supply describes the behavior of sellers. Remember sellers and supply both begin
with s. In general, sellers will supply more of a good at higher prices than at lower prices.
When this relationship is graphed, the result is an upward-sloping supply curve.
A change in price results in movement along the supply curve from one point to another. This
is called a change in the quantity supplied. When factors in the market change, the supply
curve shifts to the left or the right. This is called a change in supply.

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