Demand

Supply and
Pricing

Abel Soby Joseph

Business Economics

Roll. No- 1

Class-B.Com IAF-C

First Semester
 Introduction

There is a strong correlation between demand, supply, and pricing in the transformation of market
outcomes. The evaluation of these factors is crucial for decision makers, businesses, and consumers.
A study of demand and supply, its relationship with pricing strategies, and the changes their
relationship has on market efficiency and equilibrium is presented in this paper. In economics, the
concepts of demand, supply, and price are foundational pillars that govern market and allocation of
resources. These concepts not only shape consumer behavior and producer decisions but also
influence policy-making and economic stability on a broader scale.

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 Objectives

The main aim of this study is to explore the connection between demand, supply and pricing in
different market situations. Some of these objectives are as follows:

– Explore how changes in demand and supply affect market equilibrium and price.

– Describe the process of aggregating demand and supply.

–Describe the reason for shifts in the demand and supply curve.

–Suggest ways in which stakeholders can improve market efficiency and economic welfare.

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 Methodology
For this research, both practical and theoretical methods have been used. The theoretical framework,
on the other hand, involves an extensive study of the literature on demand theory, supply theory and
pricing strategies. Practical analysis ranges from case studies to statistical modeling that help in
showing how theories work.

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 Analysis
Demand and Supply Dynamics

Demand, in economics, is the willingness and ability of consumers to purchase a given amount of a
good or service at a given price. Factors affecting demand include consumer tastes, income levels,
and the prices of related goods. Economists believe that as the price of a good rises, buyers will
choose to buy less of it, and as its price falls, they buy more. This is such a ubiquitous observation
that it has come to be called the Law of demand.

Although a good’s own price is important in determining consumers’ willingness to purchase it,
other variables also have influence on that decision, such as consumers’ incomes, their tastes and
preferences, the prices of other goods that serve as substitutes or complements, and so on.
Economists attempt to capture all of these influences in a relationship called the demand function.

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The above diagram shows the how the demand curves move when there is an increase in demand
and decrease in demand.

In general, the only thing that can cause a movement along the demand curve is a change in a good’s
own-price. A change in the value of any other variable will shift the entire demand curve. The
former is referred to as a change in quantity demanded, and the latter is referred to as a change in
demand. More importantly, the shift in demand was both a vertical shift upward and a horizontal
shift to the right. That is to say, for any given quantity, the household is now willing to pay a higher
price; and at any given price, the household is now willing to buy a greater quantity. Both
interpretations of the shift in demand are valid.

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Supply willingness and ability to supply goods determine the seller’s actions. At higher prices, more
of the commodity will be available to the buyers.

This is because the suppliers will be able to maintain a profit despite the higher costs of production
that may result from short-term expansion of their capacity.

Clearly, willingness to supply is dependent on not only the price of a producer’s output, but also
additionally on the prices (i.e., costs) of the inputs necessary to produce it.

The law of demand posits that demand declines when prices rise for a given resource, product, or
commodity. Demand increases as prices fall. On the supply side, the law posits that producers
supply more of a resource, product, or commodity as prices rise. Supply falls as prices fall.

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The price at which demand matches supply is the equilibrium, the point at which the market clears.
The law of supply and demand is critical in helping all players within a market understand and
forecast future conditions .

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INTERACTION OF DEMAND AND
SUPPLY
Table 1 is called a schedule of demand and supply. For each price, it indicates how much clothing is
demanded by the consumers per week, and how much clothing is supplied per week. Notice that as
price decreases, demand increases and supply decreases. Eventually demand exceeds supply.

The market will reach equilibrium when the quantity demanded and the quantities supplied are
equal. At $15, supply and demand are equal at 57 articles of clothing per week. To better understand
the dynamics involved, suppose that one article of clothing was selling for $30. Producers would be
willing to supply 84 articles of clothing per week, but consumers would only be buying 28 articles
per week. As a result, the producers would have excess inventory piling up very quickly. In order to

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get their inventory back to the desired level, the suppliers would have to decrease production and
reduce the price. Eventually, the quantity demanded and quantity supplied meet at 57 articles per
week at a price of $15.

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Pricing

The law of supply and demand is among the most fundamental theories of economics. This law
explains how the price of goods and services is determined by their scarcity or abundance in the
marketplace. This law is applied by economists, policymakers, business leaders and consumers to
understand market dynamics, such as the best time to buy, sell or hold. Normally, when supply
increases and demand doesn't, prices go down. If supply remains unchanged while demand
increases, prices rise.

Things beyond essential supply and demand can alter this reality, such as

-Monopolies

-Price controls

-Misinformation

Consumers can take advantage of the law of supply and demand to make purchases at lower prices if
they become aware of events that could affect either supply or demand.

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 CASE STUDY
The precious stones industry confronts test in balancing unpredictable request against limited supply
because of the fact that ruby is scarce and possesses characteristics of luxury.

Challenges:

Supply Constraints: Periodically, there are significant shortages since rubies are rare; sourced
mainly from specific nations such as Myanmar, Mozambique.

Demand Variability: The demand for rubies by consumers varies with economic variables and
fashion trends resulting in volatile demands.

Scenario:

During periods of economic boom, rising personal income fueled growing demand for luxurious
goods such as ruby.

Strategies:

Market Positioning: Jewelers highlighted rarity and investment value to attract wealthy buyers
seeking distinctive jewelry pieces made up of this gemstone.

Supply Chain Management: Participants in the sector were focused on maintaining steady
production through trustworthy mining partnerships as well as strict quality checks.

Conclusion:

Succeeding in ruby market demands intelligent responses to fluctuations in demand as well as a

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 FINDINGS

Strategic movement:

Accurate forecasting and inventory control are critical toward ensuring that supply matches anticipated
demand.

Market Equilibrium:

Prices are adjusted depending on the interplay between supply and demand. Imbalances can result into
shortages or surpluses thus destabilizing the market.

Supply Trends:

Supply side is affected by production capabilities, resources available, geopolitical factors and
technological advancements.

Demand Trends:

These are determined by the seasons, state of economy and shifting tastes of consumers. Changes
brought about by demographic changes and shifts in culture also affect demand.

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RECOMMENDATION TO CHANGE

Demand Sensing: It is about putting in place technologies to monitor customer demand and make
production adjustments on the fly.

Risk Management: This one focuses developing strong tactics for reducing supply chain interruptions
through scenario planning and risk management.

Forecasting: Suppliers can be more involved with customers by implementing forecasting initiatives that
create better supply chain visibility and reliability.

Inventory Optimization: Use advanced analytics to optimize inventory across multiple sales channels so
as to increase efficiency and meet customer demand.

Sustainable Practices: In this case, companies should adopt ethical and sustainable practices that are
consistent with consumer preferences while at the same time minimizing their environmental footprints.

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 BIBLIOGRAPHY
https://www.cfainstitute.org/

https://ocw.mit.edu/

https://www.investopedia.com/

https://www.indeed.com/

VK OHRI

SANDEEP GARG

TR JAIN

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