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Analyzing Supply and Demand

Home Free essays Economics Analyzing Supply and Demand

This paper presents a discussion and analysis of demand and supply of a commodity in the market. The good chosen for analysis is bread. Bread is an edible substance that is prepared from wheat. People eat it for breakfast together with tea, coffee or other drinks. Answers to various questions regarding the supply and demand for bread are required. The answers are provided as follows.

Various factors affect the supply of bread. Two of them are the demand for bread and the costs of production. Demand is the quantity of a good or service that able and willing buyers may purchase at a given period. On the other hand, equilibrium quantity is the level at which the quantity of a good or service demanded equals to the quantity supplied. Where demand for bread is high, the suppliers would also increase the amount they supply in order to satisfy the market needs. In result, the equilibrium quantity will go up and vice versa. Equilibrium price of a good is the price at which the quantity demanded equals to the quantity supplied. When the demand for bread decreases, the equilibrium price also falls. This is because few customers are willing to purchase bread. On the other side, when demand increases, the price will also rise. Those who can afford high prices would purchase bread.

The costs of production of bread also affect the supply. When the costs are low, producers incur fewer expenses to produce bread. Thus, they will increase their production levels. This will lead to an increase in the supply of bread in the market. The price will fall given that there would be a big anount of bread. On the contrary, when the costs of production increase, producers of bread will incur extra costs to produce bread. Consequently, they contribute towards the reduction of the quantity they produce. The supply would decrease. The equilibrium quantity also decreases. The price will appreciate given that the quantity available in the market is low. Those who can afford high prices would buy bread.

The good chosen, bread, is a necessity. This commodity is required as part of everyday meals and necessary for human survival. Human beings require food intake to sustain their lives. People would suffer from malnutrition and other associated ailments if food is not available for consumption. Food gives energy to human bodies and provides immunity against attacks and infections. When these are not supplied to the human body, vulnerability to diseases increases; an aspect is likely to result in deaths.

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Even though bread is a necessity, it has an elastic demand. This means that its demand changes with a variance in the factors that affect the production of the good. The main reason for this is because bread has substitutes. These are goods that can be used as alternatives to bread. They serve the same purpose and give similar satisfaction to bread. Where the price of bread appreciates, customers would shift to other goods. In result, the demand for bread will decrease. In case the price of bread falls, customers would shun the substitutes to bread and purchase more of bread. This will, in turn, increase the demand for bread. Thus, bread has an elastic demand.

Governments have an influence on the activities taking place in their jurisdictions. This is the case whether the economy is a free model or planned. In case the government decides to fix a price floor, various parties would be affected. A price floor is the lowest price charged for a product or service. Where a price floor for bread is fixed, the effect would depend whether the price is below or above the equilibrium price. Where the price fixed is below the equilibrium price, suppliers would suffer a loss. The incentive to produce will decline, leading to a reduced supply of the product. The quantity of bread in the market would decrease.

Where the price fixed is above the equilibrium price, suppliers would earn more. They would be motivated to produce more so that they could get a higher return. On the other hand, consumers would avoid buying the product due to increased prices. They will shift to the substitutes of bread. In the case when the price floor is lower than the equilibrium price, suppliers would lose due to reduced revenue while customers would benefit from reduced prices. When the price floor is higher than the equilibrium price, the suppliers would benefit from increased revenue while customers would lose due to increased prices for bread.

To conclude, the aim of the paper was to offer a discussion and analysis of various market factors as they affect the demand and supply of a selected commodity, bread. From the foregoing discussion and remarks, certain factors have been identified as those that have a substantial effect on the demand and supply of a commodity. Buyers, suppliers, and governmental bodies are informed about the effects of various decisions regarding market scenarios. With adequate and correct information, sound decisions are made to the benefit of concerned parties.

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