Demand, Supply and Equilibrium Price
Shove, E., & Walker, G. (2018). What is oil energy for? Social practice and oil energy demand. Theory, Culture & Society Journal, 31(5), 41-58.
Introd
uction
Shove and Walker (2018) focuses on the global market demand and supply of oil as a form of energy. The frequent fluctuation in the supply is what somehow leads to the shift along and shift in the equilibrium prices of the product under consideration. The potentials of any business sector are measured in its ability to supply products to meet the rising demands of the global population. Despite the fact that people are continuously depending on electricity as an alternative form to oil and petroleum products, there is the tendency to alternate the market’s equilibrium point. If there is a solid interest in petroleum among people, the price will tend to go up. On the other hand, if there is a little interest in this product, it follows that the cost of the item will diminish significantly.
Components affecting supply
Supply refers to the number of products which the producers are willing to bring to the market at the current price, in this case, the amount of oil the manufacturers are willing to offer to the consumers (Shove and Walker, 2018). The amount is affected by significant factors which are not limited to the cost, cost of other related products, Expenses of generation and change in the accessibility of assets required in the production process. The ability to buy the product is what is the authors refers to as the interest in this case.
To begin with, if the cost of an item increases, the supplies will be more willing to produce and provide the product in the market as it turns out to be productive. Concerning the cost of other related products, the aggressive and joint supply sorts arise. If the supplies of oil decide to concentrate on the supply of petroleum in disregard to diesel, then there will be a subsequent fall in the supply of diesel as it will be less beneficial. This is the aggressive supply (Aaker, Kumar and Day, 2004). On the other hand, an ascend in the cost of petroleum products brings about an increase in all oil products, hence, suppliers will consider increasing their supplies to the market. Thornton (2013) refers to this as a joint supply. Thirdly, the cost of generation is directly attributed to by the rise in creation costs. Creation costs comprise the overall assembling charges. If the charges tend to rise aggressively, then the amount of the product being provided to the global market will significantly drop.
Interests rates mentioned above directly denote the demand of consumers. Factors affecting this demand include; wage rates, costs of related products, different tastes and preferences, assumptions about future changes in prices and the available number of potential buyers. Wage is the daily pay for consumers. The available amount of money to be dispensed influences the ability of people to buy different products, oil products inclusive. If a majority of consumers tend to shift their preferences from the use of oil to electricity, then the demand for oil and oil products will significantly reduce. Consequently, if the price of electricity and gas tend to be much lower when compared to that of oil, it follows that majority of people will concentrate on these products. If the future anticipation is that prices of oil and other products are likely to shoot up, the demand will rise sharply now as many people buy the products for storage. Finally, if the number of potential buyers is high, consumers tend to scramble for the supplied products as the resource becomes limited.
Economic Model as a free Market activity
This is a value monetary model which assures value for business enterprises. This model holds that in an aggressive market, the cost units of attitudes shift until when it balances at the point where the demand requested by consumers at the current price rises with the amount offered to the market by the producers (Boons, Montalvo, Quist and Wagner, 2013). The presumptions of this economic law are;
- If interests decline whilst the supply remains constant, costs will be lowered to harmonize the amount.
- If interest increases while the supply remains constant, costs will be balanced to up the amount.
- If the interest remains constant as supply expands, costs will be lowered to increase the amount and
- If the interests remain immune as the supply contracts, costs will be harmonized to lower the amount.
Effects of Surpluses and Shortages on Market Equilibrium
Following an investigation was done by Shove and Walker (2018) concerning the harmony of oil market sector, prices and volume, the free market model serves as the basic source of information to direct such financial matters. Excesses in supply clearly indicate that the amount available in the market is more than the interest of the buyers, hence impacting on the cost price at which these consumers will be willing to offer for the oil products. In the event this happens, the legislative approach should directly involve the use of value floor to evoke the balance back to normal for market and business harmony. As the value cost directly influences the base cost, the decency of this market can easily be brought back to balance.
Effects of supply and Demand on Businesses
Supply and demand of a product, say oil, in this case, can easily be denoted by curves both influenced by prices at most. The point of meeting of the two curves is what is the equilibrium balance cost and point. If for instance, a petroleum supplier decides to charge $ 0.90 a pound, which is not at the balance point, then, it follows that he/she will offer more products to the market yet there will be fewer benefits following the harmony cost. This means that the request would bend the curve leading to an expansion in the balance cost in the end. Besides, the supply curve would also move along and thus, calling for an adjustment in the balance cost.
Graphical Representation of Supply and Demand
It is always important to respect the amount requested and supplied in order to harmonize the costs. This attempt assists to arrive at a standardized graphical representation of which Alfred Marshall describes as containing the cost on the vertical line while the amount requested on the horizontal plane for representation of numerical capacity. Aarker and et.al (2004) reiterates that the supply requests are the determinant of the free market activity. This means that in the estimation of these variables, the direct impact is always bending of the market activities (bends in the curves). However, it is adequate to note that the surplus in the market is influenced by changes in the value of the products, prices, maker overflows.
Request Curve
Any given shift in the interest bend offsets the maker overflow. If the interest diminishes, there is a bending movement on one side depicting the marker surplus reduction. Moreover, if there is an increase, the bend will take the one side movement to bring about a surplus increment. In the case of the curves given bend, the blue triangle denotes the marker surplus. When the interest increases, “interest 2”, the surplus includes triangle P2, A and C as shown in diagram 1 below.
Changes in Price
The change in costs is direct measures the amount of surplus the marker is likely to get. From the graph given below, the surplus (marker) is over the supply bend but below the cost curve (Friedman, 2017). On meeting the two curves, it follows that a balance cost will expand which will influence the measure of marker surplus that the quantity is potential for oil supplied increments. Consequently, if the costs move significantly lower, the marker supply potentials will also be lowered hence, affecting the merchandise supplied. The overall results will be a lowered harmony value, reducing the surplus triangle.
Figure 1: Demand and Supply Curves
P- Price
C- Cost
References
Aaker, D., Kumar, V., & Day, G. (2004). Marketing research. New York: John Wiley & Sons.
Boons, F., Montalvo, C., Quist, J., & Wagner, M. (2013). Sustainable innovation, business models and economic performance: an overview. Journal of Cleaner Production, 45, 1-8.
Shove, E., & Walker, G. (2018). What is oil energy for? Social practice and oil energy demand. Theory, Culture & Society Journal, 31(5), 41-58.
Thornton, T. (2013). The possibility of a pluralist economics curriculum in Australian universities.
Friedman, M. (2017). Price theory. Routledge.