The term demand as understood by the economists is the relation that exists between the cost of the product and the value that the consumers are willing and can purchase at that price at that particular time. The law of the demand states that the quantity of the goods demanded is negatively related to the price ceteris perilous (other factor kept constant). For instance, if the company gives a rough estimate of the vehicles that the consumers can purchase at a given time, a demanding schedule can be created and the graph is drawn. The graph will indicate that buyers are willing to purchase good at low prices. The price and quantity can be mathematically expressed as; quantity demanded (Qd) = f (P). Quantity of demanded the product is a function of the price (Hirschey & Pappas 1996). The demand function is however dependent on many factors. It is influenced by consumer income. The demand increases when the income of the consumers shoots. When consumers get more capital their purchasing power increases. Some of the goods’ demand increases with a shoot in the income while others the demand decrease. Some are positively related to the price (normal goods) and others negatively related (inferior goods). Therefore an increase in the consumers’ income either increases or decreases the demand of a product. The prices of the closely related goods are the other factor that the demand function anchors on. Generally, a decrease in the prices of the related good should result to a decrease in the quantity that are demanded for example when the price of the substitute goods falls then automatically the customers’ demand will increase for the substitute. A fall in the price of tea will cause the demand of coffee to decrease. Population increase will result to the increase in the demand of a good. For example when the population of the mice increases the demand of mice killers will increase. The clients’ future price expectation also affects the demand function. If the consumers are expecting the price of a particular good to shoot in the future, they will make more orders for it hence an increase in the demand. The reverse happens when they anticipate the cost to go down. The consumer information about a particular product or services also influences the demand function. In case the buyer realizes for instance that the product is harmful to their health, they will decrease the purchase.
The demand function
The demand function is dependent as well on other factors that are for a reason and a season. The occasions can serve as the preeminent for example the Christmas. It is known that for a firm to exist is the demand for its products. Decisions that the firm makes influence the demand for its products by the consumers. For instance in case the price of the product is increased by one percent of the original prices the customers’ demand for that particular good changes. The amount of sales then decreases. The supply can be categorized as mostly the company dependent. Demand originates mainly from the buyers but the supply is determined by the company. The law of the supply states that price and the quantity supplied are directly proportional. An increase in the cost of a particular product result to the increase in the supply. Amount that the company supplies is dependent on the price (Broadman et al 2005). The quantity that is supplied (Qs) = f (P). The equation for the farmer that represents the market supply schedule and the supply schedule is; P = c + d Qs. It is normally expressed as P= c + d Qs. Taking the Organization of Petroleum Exporting Countries (OPEC) as an example and assuming it equilibrium. If the following table was obtained,
|Price of the oil||Quantity demanded in billion liters|
If the price falls from 120 to 100, the price shoots from 5 to 10. The relation is thus
P = c +d Qs. Since in this case they are negatively related P= c+ d Qs. For example c is zero. Our resulting equation is P = c+ d Qs. The formulae may not work at price of 80 due to approximations in nearest whole numbers. D in this case is a fraction.
Supply function depends on a variety of factors for example the cost that the companies operate at and the taxes that are levied on the company. An increase in these costs will make the company to increase the costs of its product so it can continue to run. An increase in the supply means the producers are willing and are able to more units of the product at that price (Transtutors 2009). The outcome should always be equal or greater than the expenditures for the survival of the company.
The change in the technologies and the influence of the government to a greater level determines the supply that a company makes. If the technologies are favorable and the policies of the government are also friendly, the production will increase. The supply function also depends on the number of the firms that can produce that same product. If there exist more than the companies’ power to supply is watered down as the competition will be high. Two behavioral statements about the way the buyers have been have been set up. The quantity that the buyers are ready and willing to purchase is dependent on the price and the rest of the factor is assumed is not changing. The following table was obtained in supply.
|Price per liters in $||Quantity supplied (in million liters.)|
The supply function P = c +d Qs. In the case, c is still ten d is a whole number. The price and the quantity supplied are directly proportional.
Secondly the quantity that the company is ready to sell depend s on the price other factors kept constant. We can say the Qd = f (price being constant) also Qs = k (price remaining constant). We can view that the price are all constant and join the two equations as Qs = Qd. For the profit maximization, the managers should figure out the weakness, strengths, the available opportunities and the possible threat that the company might be facing. The profits can only be made maximum if and only if the marginal costs are less than the marginal revenues. To maximize profits, the outputs should be expanded. There are a variety of methods like through advertisements, production of high quality products. They should be aiming at how they can suitably put the available resources in practice to help them reach their objectives and goals. The main functions of the management are to make decisions and to forward planning.
The process of decision making helps, in the end, becomes one that provides the most effective means of profit maximization and attaining the goals. These decisions do aid in the formulation of business policies (Hirschey & Pappas 1996). It is made concerning the goal to be achieved, the plans as to the production, the price of the good, the available raw materials that can be used in the production, the labor. They should predict the relevant economic quantities like the profit, the demand, the production hand so on. Some of the factors that affect the operating system of the organization are internal and others external. The managers should comprehend these factors and the forces that constitute the environment that the business is operating and to which it should adjust for profit maximization.
Transtutors “Economics: Demand and Supply” 2009 Accessible online from URL: http://www.transtutors.com/economics-homework-help/managerial-economics/demand-and-supply.aspx
Broadman, H. G. Paas, Tiiu P. J. & Welfens J. “Economic liberalization and integration policy: options for Eastern Europe and Russia” Illustrated Edition Birkhäuser, 2005
Hirschey, M. & Pappas J. L. “Managerial economics” 8th Edition Dryden Press Publisher, 1996 Pennsylvania State University Digitized; Jul 16, 2009
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