Autumn 2021

Managerial Economics - I
Essay Assignment

Ques.1 Discuss supply and demand and how they affect fluctuating prices
in the market, and discuss how fluctuating markets affect individuals. Talk
about different factors of supply and demand, such as manufacturing costs,
the labour market, recession and depression, and even seasonal changes.
Some examples are the price of electronics in an increasingly technology-
based society, or the demand for staple food items in different regions.

Supply and Demand the two most fundamental concepts of economics. The two
laws which interacts in every business affair. Supply refers to Quantity of
amount and demand is noted to be Desire. one should have the desire and
capacity to buy a commodity and should be willing to pay its price to constitute
effective demand for that commodity. The fundamentals of supply and demand
is a theoretical concept that explains the interaction between sellers of a
resource and buyers for that resource. The concept relays between the price of
good and product and the willingness of people to buy or either sell it.
Generally, as people’s willingness to supply more and less demand occurs when
there is an increase in price and the willingness to demand more and supply less
when the price is relatively less.
Prices tend to rise in market If there is an increase in supply for goods and
services while demand remains the same, prices tend to fall to a lower
equilibrium price and a higher equilibrium quantity of goods and services. As
we know both laws are depending on each other’s actions. Goods are demanded
because they have the capacity to satisfy our wants. But, every want of a
consumer cannot be called a demand. Demand does not mean mere desire for
commodity.
The Laws of demand and supply are to two most basic economic laws, almost
all economics principles somehow relay into it. The market equilibrium price or
the price where the quantity of the good that people demands equals to the
quantity of goods that people supply depends on the willingness of people to
supply and demand a good.
The concept determines that if all the other factor remains equal the higher the
price of a good, the fewer people will demand for the good. In other words
when the price gets high the quantity demanded falls. The amount of good that
buyers purchase at maximum price is less due to the price of good goes up, so
does the opportunity cost of buying that good.
Similarly, the law of supply explains the amount of good sold at the specific
price. But unlike ok to the law of demand, the supplier relationship shows and
increasing curve. This means that the higher the price, the higher the quantity
supplied. From the seller's perspective, each additional unit’s opportunity cost
tends to the higher and higher. Producers supply more at the maximum price
because maximum selling price justifies the higher opportunity cost of each
additional unit sold.
Manufacturing cost plays an important role in successful design and
manufacturing of a product full stop based on the model of added value,
manufacturing cost must be lesser than the value added to allow profit to be
made. Therefore, the cost of design and manufacture of product is very essential
in ensuring success. In addition, cost is very often used for making the season
for the way the product going to get manufactured and the design it will get.
Manufactures have to make very essential decisions based on the cause for
example the type of material to be used for a product, the type of manufacturing
process to be used for a product. The amount of product to be manufactured
also plays really important role where is whether to make or buy in a product
and the design of a product the most important things to look after in the
manufacturing process of a product, all these key points are based on the
manufacturing cost of product.
Generally, desire, want and demand bare interchangeably used in day to day
life. But in economics, all these terms have different meanings.
Supply is also involved between price and quantity of goods. Supply is a desired
quantity which indicates willingness to pay for your desired goods.
Economists have observed the behaviour of buyer and sellers. The fluctuating
price in market affects in the form of increasing and decreasing behaviour of
supply and demand. So as price increases both demand and supply increases
and if prices decrease supply and demand decreases. In our daily standard of
living supply and demand influence in every purchasing and selling activities.
In individual’s life supply and demand affects more significantly because if a
person has desire to buy something but he or she is not able to afford it or to pay
for it. If the demand for goods increases but the supply is less then it will be
harder for many middle classes or lower middle-class individuals to go for it
and still the person has desire to purchase that good but not willing to pay for it.
For example, if there's one house for sale which has multiple customers to buy
but less to sell then the price for that house will increase it means if there's more
people who wants to buy something it means it has multiple buyers but
unfortunately it has less seller so the price will rise and demand will increase as
well.
In daily standard of living everyone has its own desire which they want to fulfill
in their life but the toughest barrier which comes first is financial problem so the
desire became unwanted. 95% of people in world live in wants. Demand and
supply the two main aspects which affects the persons very own desire. If
individuals are desire to buy but can't afford it they will only fulfill their needs
which are most required. Laws of Demand and supply not always affects to
every citizen mostly it affects to middle class or lower middle-class citizens
who are necessitous and who are most desirable but less willing to pay for it.
Factors of supply and demand which we should think of are Price fluctuation a
very strong factor which affects supply and demand sometimes average
consumer no longer feels that the product is worth to buy for them so the prices
of goods declines. So, lowering the price will increase demand and then average
consumer feels the product has best value.
The demand for labour is an extrapolated demand. It is extrapolated from
demand for the goods it helps to produce. The greater the consumers’ demand
for the goods, the greater the manufacturers demand for the labour required in
producing it. Therefore, an expected increase in the demand for a goods will
increase the demand for the type of labour that manufacturers that goods.
The demand for labour also depends on the prices of the Influencing factors.
Suppose the mechanical instruments are costly, as is the case in India, obviously
more labour will be employed. The demand for labour will increase. Another
factor that influences the demand for labour is the engineering progress. In
some cases, labour and machinery are used in an explicit ratio. For example, the
introduction of automatic looms reduces the demand for the respective labour.
The supply of labour means the different numbers of workers of a respective
type of labour which would work for employment at different wage rates. For
an enterprise, the supply of labour is elastic. Therefore, if a specific industry
wants more labour, it can get it from other industries by offering a higher
employment wage. It can also force the present labour to work over-time. This
will result an increase in supply. The supply of labour for the enterprise is
subject to the law of supply, i.e., low wage, small supply and high wage, large
supply. Therefore, the supply curve of labour for an enterprise shifts upwards
from left to right.
The supply of labour for the entire economy rely on economic, social and
political factors or industry factors, e.g., attitude of women and men towards
work, working age, school and college leaving age and opportunities of part-
time employment for students, size and ratio of the population and sex
distribution, attitude towards marriage, the no. of the family members, birth
control rate, standard of medical facilities and sanitation, etc.
The supply of labour may be down by workers refusing to work for a time. This
happens when labour is organised into labour unions. The workers may not go
for wages offered by the employer if such wages do not guarantee the
preservation of a standard of living to which they are accustomed.
A recession is associated with a reduce in prices. This makes unlearned sense,
but it can also be explained by the supply and demand curves. When people lost
their jobs and are not able to pay as much, businesses may lower prices to keep
sales up as much as possible. The supply and demand curves also avouch to
this, since a leftward shift in the demand curve will cause in lower equilibrium
price and demand levels, where supply and demand intersects. Not every
demand curve is hit equally hard during a recession, however. While jewel sales
may drop dramatically, bread sales decline far less. How much a business
should reduce its prices during a recession depends on the gravity of the shift in
the demand curve of its products.
The demand curve can shift due to a various reason. Suppose you own a pizza
shop and sell 1,000 pizzas a week if you price them at INR 350 a slice. During
IPL season in India, people will likely buy more pizzas, even if your price stays
the same. This means that the demand curve must have shifted right, since the
same price of INR 350 is now corresponding to a quantity farther to the right
along the graph. During a recession, people will buy less of practically all goods
and services at the same price as before. Hence, demand curves for various
products will shift to the left during a recession.
Some product or service categories may enjoy higher sales during a recession;
in simple words, their demand curves shift to the right. Sales of products in
thrift stores, for example, may increase during a recession. There are very few
such product categories and stores, however. If you are lucky enough to see a
positive fluctuation in demand for your products or services during a recession,
you may be able to raise prices. But one should be careful and consider the
longer-term consequences of his/her pricing policy. A cutting-edge hike in your
sales price might not only make consumers feel exploited, but also invite new
market competitors who may enter the market with comparatively cheaper
offerings.
Demand and supply also changes due to natural factors. For instance, if rainfall
is plentiful, timely, and well distributed, there will be good quality and quantity
crops. On the contrary, floods, droughts, or earthquakes and other natural
calamities are bound, to affect production quantity and quality of crops
adversely. This is one set of conditions which brings about a change in the
supply and prices are more likely to go high in such case.
Ideally, all businesses would tend to possess an annual chart that shows
consumer activity heading continuously in one direction – upward. But in real
life scenario, things are far more complicated. Some essential products will
have relatively stable demand throughout the year. However, for others, a lot
will depend upon the time of the year and relative level of consumer activity.
For example, November and December are usually the peak season for
consumer to buy goods and electronics, as people purchase presents for the
holidays. In contrast, textbooks and stationery producers may see significantly
increased demand at the start of the school and college academic years.
In Industry, seasonal factors can have a huge impact on levels of revenue.
Depending on your industry, you will likely experience intervals of the year
where the money is rolling in, and others that are frustratingly low in
comparison. The tourism industry is a very good example of this seasonality in
play; there is naturally a spike in business during the summer season, while
things tend to wind down in the winter season. This is where travel agents and
tour operators have to get creative, offering tour packages or pushing cheap
deals in area of the world that are still warm.