markEts
Most of the products and services made available in the world today are controlled by inter-connected markets. Markets are places where people interact with each other to create deals in which tradeoffs later occur. People who are able to buy and sell products and services are mostly the ones who run the market. We, as people, are very dependent in the market. We are contributing to the market everyday by buying food, buying basic necessities, paying for the gas used to go to school, and so on. In this blog post, you will be learning about the market and specific concepts related to it.
Demand
Demand is the request of a certain product or service by the consumers. It is the basis of most businesses to be able to know what type of product the people are demanding in the market. For example, the people demand for plain colored shirts, then the companies who are involved in the making of colored shirts would increase their production of shirts to satisfy the demands of the consumers. In economics, the demand of a certain product in the market can be usually seen in a demand curve. The demand curve reflects the demand within the market of a specific good, whether it is increasing or decreasing. A change in price however, results to only a movement along the curve as only the price of the product is the factor affecting the demand for it. Shifting a demand curve means that the demand increased or decreased because of outside factors. These factors include the number of buyers, income, consumer preference, substitute good and price of related goods. If these factors cause the demand for a product to increase, then the curve would shift to the right and if the demand would decrease, the curve would shift to the left.
Elasticity of demand
Price elasticity of demand however, is a different story. If the demand for a product increase or decrease significantly due to a change in the price of the product, we can say that the demand is elastic. On the other hand, when the price is changed and there is little to no change in the demand for the product, it means it is inelastic. Elasticity is just based on the responsiveness of the graph to a change in demand when the price is altered. Determinants also play a role in determining the elasticity of demand, these include:
Necessities vs Luxuries- A necessity is what everyone needs to use everyday which means that people will still buy these products even with a decrease of increase in price making these products inelastic. A luxury is what the people want to buy and is not entirely needed. A decrease or increase in price of a luxury product would result to people either buying it or not buying it at all, making these products elastic.
Availability of Close Substitutes- when the price of a substitute product increases, the demand of its counterpart would increase as prices are cheaper and vice versa.
Definition of the Market- the broader the market of a product, the more inelastic it would be. The more specific the market of a product, the more elastic it is.
Ex. Market for gadgets=inelastic, Market for Android phones=elastic
Time Horizon- A product may be inelastic at first but as time goes by, it slowly becomes elastic.
Ex. Market for walking shoes is inelastic in the short run because people need shoes, but as time goes by, people may resort to wearing sandals or slippers instead making it elastic.
Percent of Income a good costs- If the price of a good is cheap when it is first introduced, then it will be inelastic. If it is expensive on the other hand, it will be elastic.
When the demand curve is flatter, it is most likely to be elastic; if the demand curve is steeper, it means that it is inelastic.
Necessities vs Luxuries- A necessity is what everyone needs to use everyday which means that people will still buy these products even with a decrease of increase in price making these products inelastic. A luxury is what the people want to buy and is not entirely needed. A decrease or increase in price of a luxury product would result to people either buying it or not buying it at all, making these products elastic.
Availability of Close Substitutes- when the price of a substitute product increases, the demand of its counterpart would increase as prices are cheaper and vice versa.
Definition of the Market- the broader the market of a product, the more inelastic it would be. The more specific the market of a product, the more elastic it is.
Ex. Market for gadgets=inelastic, Market for Android phones=elastic
Time Horizon- A product may be inelastic at first but as time goes by, it slowly becomes elastic.
Ex. Market for walking shoes is inelastic in the short run because people need shoes, but as time goes by, people may resort to wearing sandals or slippers instead making it elastic.
Percent of Income a good costs- If the price of a good is cheap when it is first introduced, then it will be inelastic. If it is expensive on the other hand, it will be elastic.
When the demand curve is flatter, it is most likely to be elastic; if the demand curve is steeper, it means that it is inelastic.
suPply
Supply is the answer to the demand of a product. It is what businesses provide for their customers, whether it is a product or a service. Supply is very important in the market; because this, as well as demand keeps the market operational. Businesses should study their supply schedule properly in order to know if they can satisfy consumer demands. Like demand, the supply of a product can also be seen in a curve called the supply curve. Supply has a positive relationship making the line curve at an upward direction unlike demand which curves at a downward direction. Determinants of supply include, number of sellers, technology, other related goods, resource costs, expectation and subsidies and taxes. The rules for interpreting a supply curve is actually very similar, when price is the factor for the quantity supplied, then only a movement along the curve would happen. The curve would only shift to the left or right if the factor that affects this is an outside factor.
elasticity of supply
Supply can also be seen as elastic or inelastic, this is called the price elasticity of supply. Elasticity is already explained awhile ago while explaining demand, but just to recall, it is the responsiveness of a graph to a change in price; meaning it has the same application to supply. Determinants are also present which include:
Supplier Flexibility- If the good is easily produced or not. It will be elastic if good is easily available and inelastic if the good is not easily available.
Time period- Like the time horizon, a certain product can be inelastic in the short term but elastic in the long run.
The supply curve would become flatter if it is elastic and steeper if it's inelastic.
Supplier Flexibility- If the good is easily produced or not. It will be elastic if good is easily available and inelastic if the good is not easily available.
Time period- Like the time horizon, a certain product can be inelastic in the short term but elastic in the long run.
The supply curve would become flatter if it is elastic and steeper if it's inelastic.
issue that may concern market relations
An economic issue that concerns the principles of supply and demand is the ongoing conflict between the Philippines and China. Both countries are fighting over the spratlys islands and other islands near it because both countries plan to use these islands as a source of energy as it is reported that 230 billion barrels of fuel can be harvested from the islands. This may affect the trade relations between the Philippines and China greatly. Products that the Philippines would demand for might not be supplied as much as before when both countries were in good terms. The journal of political risk, an analytical website that analyzes possible political risks in involved countries and is published by Corr analytics inc. which is ran by Dr. Anders Corr Ph.D, who graduated in Harvard and has a B.A in Yale, states that China is the number one trading partner of the Philippines. In 2005, $18 billion is the trade value between the Philippines and China and it increased by $12 billion during 2007 making the value of trade at $30 billion. They plan to increase the trade value to $60 billion by 2016, but that may be impossible given the disputes happening. It would be convenient for the Philippines to import products from China as it is just close by as it would also be convenient for China to import products from the Philippines. This conveniency will surely not last as the two countries might cut trade relations totally if not limit it to a few exporters. If this bitter attitude from China toward the Philippines continues and spreads to its people, then it is inevitable that the people in China would not demand for Philippine products; and same with the Philippines. This is an issue that negatively affects the economy of both countries with a more grand effect on the Philippines as it is a third world country. In the long run, the demand and supply of both countries' bilateral trading will be greatly affected and reduced. The Philippines would stop buying from China and vice versa. People will get affected as their demands won't be satisfied and businesses will also be affected as they might decrease supply as there will be less consumers in the Philippines and China that will demand for their product. It can be said that most products coming from China are inelastic for the Philippines because it is affordable enough given the budget of the majority of our fellow Filipinos. The quality is also "good" enough and China also needs our agricultural harvests as Philippine soil is known for high quality crops making our outputs inelastic to China if we look at the conveniency aspect. In the long run, we may resort to importing from other countries thus making Chinese products elastic.
As we can see, the continuing conflict between the two countries also brings continuing problems in both countries' economy. Conflict is inevitable and might never stop until someone "wins". To let the tension between the two countries decrease, China should stop building structures and defenses in the Spratly islands as confirmation of their ownership is not yet set. This is also one of the main reasons of the conflicts; stopping this would surely lessen tension. This problem should be resolved quickly as both countries also rely on each other in terms of the growth of their economy and will find it hard to improve until the problem is resolved.