Supply and Demand Explained

Supply and Demand Explained

Supply and Demand Explained

The relationship of supply and demand is relatively simple but it is an important idea for all business persons to understand. If one does not know the relationship between supply and demand they will not be able to properly function in the business world. Supply is primarily determined by demand, if the demand for a product is high then people will be willing to pay a higher price for that product and as a result more suppliers will be willing to make that product because they can sell them for a higher price. If demand is low the exact opposite will take place. Demand for an item is related to whether it is an inferior or normal good. As the median salary for a country rises the sales of inferior goods will fall because people can afford the better option, and along the same lines the sales of normal goods will rise with an increase median income.

Demand can also be affected by a change in the culture such as the sale of super baggy jeans. During the early to mid 1990s baggy jeans became very popular for younger adults this was right on the heels of the parachute pants crazy. As the 1990s concluded baggy pants went out of style with and tighter pants began to take their place. This resulted in a large decline in super baggy jeans sales as well as an almost complete depletion of parachute pant sales. Supply can also be affected by outside sources such as if there is a limited amount of a product in the world such as oil. For the past few years the cost of oil, and consequently the price of gasoline, has been on the rise. One big reason for the increase cost of oil is that there is a higher demand for oil due to China's large increase in oil intake. Oil that used to go to the United States is now being shipped to China.

"When on Feb. 10, President Hugo Chvez of Venezuela threatened to cut oil exports to the U.S., it was widely understood to be an empty threat. But that didn't stop oil prices from rising for three days straight in reaction." Most experts feel that the United States "won't see oil prices head down unless there's a major increase in supply, a sudden religious conversion to conservationism, or a recession" (Herbst, 2008). Oil is a very interesting product to look at from the supply and demand standpoint because there are so many factors that contribute to its price fluctuations, but it is also interesting because there is a limited supply of oil on the earth. Humans are stewards of this earth but using oil as a primary source of energy often releases pollution into the air, we need to search for and adopt other forms of energy in order to reduce pollution on the planet.

Written by John Severin,

CD Player Electronics

http://cdplayerelectronics.net

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