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Micro Economics College - Essay Example
Author : nitzscheward
Pages 4 (1004 words)
The price of any good is determined by so many factors, majority of which are outside the control of an individual producer/marketer. Among the various factors, demand and supply are the prominent factors that are likely to affect the price fixed by manufacturer/marketer…
There are exceptions to this general rule. However, in the case of commodities that are normally consumed, this rule can be applied. It can be therefore, inferred that demand and supply are two opposite extremes of the same phenomenon and when it comes together (it is necessary), the price is determined, called the equilibrium price. This equilibrium price ensures that quantity demanded is just equal to the quantity supplied at any time point and this decides the price of that good (Forget 1999, p. 141). In the context of hike in the price of enriched wheat flour in Malaysia, the following demand- supply model is suggested.
The price of wheat here is determined by the forces of quantity demanded and supplied. The quantity of wheat supplied at any time is the amount of wheat that the suppliers are ready to offer at a certain price. Similarly, the amount of quantity of wheat demanded by consumers implies the quantity that consumers are ready to purchase at a certain price. When both demand and supply interact together at a point, the price is determined. This situation is known as equilibrium price. This situation gets affected when there is a mismatch between quantity supplied and demanded. At this juncture, the quantity demanded does not coincide with what is offered by suppliers and thereby the price reaches at disequilibrium. ...