Demand, Supply, Price Flooring, and Price Ceiling

Abstract 

Understanding how essential aspects such as demand, supply, price flooring, and price ceiling affect the market is essential to every business person. As such, this piece of literature evaluates the mechanics behind demand, quantity demanded, determinants of demand, shift in the demand curve, supply, quantity supplied, a shift in the supply curve, determinants of supply, price flooring, and price ceiling, and change in equilibrium price and quantity. It also illustrates these aspects using a graphical representation. 

Introduction 

The market for goods and services is influenced by various factors such as demand, supply, price flooring, and price ceiling. It is vital for an economist or a person with a business-oriented mind to understand these concepts and affect the market.  

Demand 

Demand is an aspect that makes reference to the quantity of products that users are can purchase at a particular price; for example, amid the rising covid-19 cases in china, the oil demand is currently under pressure, especially in largest energy consumers like China and the United States, until curfews and lockdowns are lifted, and the rate of infection slows down ( Tama, 2021) . Furthermore, since the Corona pandemic began, there has been a great change in consumer behaviour; the personal savings and personal incomes of the United States citizens have increased rapidly due to the $2 stimulus package that the US government recently passed. Furthermore, there has been increased home equity caused by a rise in home prices which has left many homes better than during the pandemic (Stankiewicz, 2021). The high personal savings have led to high purchasing power, which has increased the demand for entertainment and travel services. 

Quantity Demanded 

Quantity demanded refers to the total quantity of goods that customers are demanding at a certain price. When the lockdown was imposed, travel was restricted in many parts of the world, leading to a reduced number of oil consumers (Stankiewicz, 2021). Consequently, the quantity of oil consumed every day reduced drastically because fewer consumers had the oil demand.  

Determinants of Demand 

These are factors that influence the purchase patterns of goods and services. These factors include price, income, economic conditions, customer base and expectations, taste, and preferences—a rise in individual income increase the customers’ buying ability (Krauss, 2021). Consequently, customers can purchase larger volumes of specific products or services. Thus the demand for the specific products increases. For example, the increased personal income and personal savings for personal citizens due to the $2 stimulus package increased US citizens’ ability to purchase more entertainment and travel services. 

Furthermore, the law of demand and supply dictates that a rise in a certain good or service’s cost leads to a fall in demand. For example, when the oil prices increase, it results in a rise in gas prices in petrol stations. Consequently, customers with less income will drive less. 

Besides, if there is a suspicion that there will be a rise in products’ price in the future, its demand in the present tends to rise (Krauss, 2021). At the beginning of Covid-19 lockdown, the demand for gas and crude oil because consumers who had anticipated lockdowns increased their purchase for these products hence the high demand. It was easy to see that curfew and lockdown in petroleum-producing countries will make it impossible to ship the product to interested consumers. Furthermore, customer taste and attitude affect the product’s demand. For example, there was a high demand for surgical masks and alcohol-based hand sanitizers when institutions like CDC and WHO said that these products could reduce the SERS' virus spread.  

Demand is also subject to market size. An increased consumer willingness to purchase a specific product leads to an increased demand for the product. For example, during the Covid-19 lockdown in the United States, the travel rate was reduced, and few customers needed gas which led to a reduction in its price in gas stations. The perception of consumers regarding an economy may affect their consumption propensity. If consumers' confidence regarding their economy is low, they tend to hold their savings accounts, hence reducing their consumption for specific products. For example, the United States citizens were not sure of their economy; thus, they consumed less on products like gas and saved more, leading to increased savings in their accounts.  

Shifts in Demand Curve 

A shift in the demand curve refers to a situation where consumers are willing to purchase more products at the same price. It implies that when people’s purchase power increases, they can purchase more of the same product at the same price (Krauss, 2021). For example, the increased income and savings for the US citizens meant that their purchase power was increased; thus, they can purchase more travel and entertainment services at the same price.  

Supply 

The amount of specific products that a business person can supply, which is influenced by prices (Stankiewicz, 2021). For example, due to the high rate of covid infection, the Covid commodities manufacturers were willing to supply more of these products at a specific price. 

Quantity Supplied 

It refers to the amount of products that a manufacturer is willing to produce and sell at within a specific instance and at a specific price. For example, when the lockdown and curfew will be lifted, suppliers will be willing to produce and supply more products that were not available in the economy at a specific price to meet their demand.  

Determinant of Supply 

Supply is influenced by production cost, Technology, Number of Sellers, and Expectations for future prices. For example, the manufacturers of covid products were in luck since many governments provided capital, which reduced the production cost and increased the amount of products produced, hence increasing supply ( Tama, 2021) . When there is the available technology for producing a specific product, its supply tends to increase, but the technology's absence leads to low production hence low supply. In a situation where the producers of a certain product are many, its supply tends to be high. Also, when suppliers anticipate a high price for a specific product in the future, they tend to hold more of the present product, leading to a reduced supply. 

The shift in Supply Curve 

A shift in the supply curve occurs when a change in non-price factors leads to a change in commodity supply (Stankiewicz, 2021). For example, the implementation of lockdown in the world led to a reduced supply of oil products.   

Changes In Equilibrium Quantity And Equilibrium Price. 

Products quantity and price are at equilibrium at a price where the number of products demanded and those supplied is equal. However, a change in equilibrium price or quantity occurs when a demand or supply curve shifts leading to a change in price or quantity. For example, when the lockdown will be lifted, there might be an oversupply of products in low supply during the lockdown. Consequently, there will be an excessive supply leading to reduced prices and reduced demand for the products.  

Price Ceilings and/or Price Floors 

A price floor is a price that is the minimum allowable price set by the government above the equilibrium price. However, it is inefficient because it can cause surplus when set above equilibrium. On the other hand, the price ceiling is the maximum allowable price where the government forbids prices above the maximum (Krauss, 2021). It can be inefficient because it can create persistent shortages if set below equilibrium. They prevent the market from adjusting to its equilibrium quantities and price, resulting in inefficient outcomes.  

Conclusion 

Every business-oriented person needs to understand how essential aspects such as demand, supply, price flooring, and price ceiling affect the market. Therefore, understanding how price ceiling and floors, changes in equilibrium prices and quantity, shift supply curves, shift in demand curves, determinants of demand and supply, quantity demanded and supplied. Demand and supply work helps one analyze the market and orient the business towards these factors.  

References 

Krauss H. (2021). After a bruising year, the oil industry confronts a diminished future. The New York Times. https://www.cnbc.com/2021/01/27/oil-markets- coronavirus-us-crude-stockpiles.html 

Stankiewicz K. (2021). LGI homes CEO expects housing demand to remain strong even as mortgage rates tick up. https://www.cnbc.com/2021/01/27/oil- markets-coronavirus-us-crude-stockpiles.html 

Tama W. (2021). Oil rises as larger-than-expected U.S. crude draw outweighs Covid-19 demand concerns. CNBC. https://www.cnbc.com/2021/01/27/oil- markets-coronavirus-us-crude-stockpiles.html