In the above diagram we see that the change in price level is inversely related to the change in quantity demanded. At a higher price of 1000 dollars, only 10 pieces of the good are demanded, however at a lower price of 250 dollars, the consumer is willing to purchase more number of goods and hence buys 20 pieces of the same good. Therefore, we can conclude that consumers are willing to buy more at lesser prices.
However, the same is not the case with suppliers. The relationship between the change in supply and change in price is directly related as producers want to maximize their sales and also attain economies of scale. Below is a diagram demonstrating this correlation:
In this graph we see the law of supply at work: “As supply rises, the quantity supplied rises; as price falls, the quantity supplied falls”. This schedule tells us that the more the number of goods supplied results in higher prices being charged. This scenario is great for suppliers as the attain economies of scale and can harvest more profits. As you can see, the supplier supplies 10 units of the good for $250.00 and 25 units of the good for $1500.00.
This brings us to “Equilibrium price and quantity”. As you can see, there is a conflict of interest between the demand schedule and the supply schedule. This arises more at Christmas time as consumers are on a shopping spree and still want to maximize their dollar to the fullest. The suppliers also know that Christmas time is a time for an increase in sales and hence want to harvest as much profit as they can. Since this is not possible as there is a conflict of interest, comprises are made and a point of equilibrium price and quantity is sought. The schedule shown below demonstrates this.
As you can see, a point of equilibrium is reached between the quantity demanded and supplied at 40 units and 1000 dollars. If the point is to the right of the center of equilibrium then it is too impractical for the supplier to supply goods at those prices and if the point is to the left of the center, then it is too expensive and impractical for the consumer to buy the product. Therefore, the supplier and the consumer often make sacrifices on both ends to reach the point of Equilibrium.
What does Christmas time have to do with all of this? It is the one time in the year that both buyers and sellers are attracted to the market place to complete transactions. Therefore this is the best time to see the laws of demand and supply at work. In order to have an increase in sales, suppliers try to provide as much incentive as possible too buyers so as to motivate sales which will result an increase in demand leading to an increase in demand.
Looking at changes in supply levels, we can see some of the determining factors. Supply has been affected by prices of the factors of production. Higher resource prices raise production. Improvements in technology and techniques of production enable manufacturers to produce more units with fewer resource bringing overall costs down. Since businesses treat tax as a cost, subsidies are welcome and help in lowering product costs hence increasing sales. Suppliers also lose out on sales to substitute goods. For Example, a soccer ball producer is always under threat from a baseball bat producer and vice versa. Supply is also affected by complimentary goods. Competition also plays a role in supply prices. However, the biggest influencing factor in supply prices is price expectations. Changes in expectations about the future price of a product may affect the producers willingness to supply that product.
During the last few years, the US economy has not been doing so well and more and more people are losing their jobs and therefore do not have enough money to spend. The government has been actively trying to rectify this situation by implementing tax cuts, fiscal and monetary policies.
