Market Demand And Supply: Raven Almonacid Jhang Treb Bacorro Lorraine Martin Ma. Feliciana Lara Clarisse Marie Go

MARKET DEMAND AND SUPPLY Raven Almonacid Jhang Treb Bacorro Lorraine Martin Ma. Feliciana Lara Clarisse Marie Go

Market mechanism • is a term used to describe the manner in which the producers and consumers eventually determine the price of the goods that are produced. Producers usually set a price to respond to how many goods are being purchased, and consumers, on the other hand, react to that price. This process is usually connected to the laws of demand and supply, and the market mechanism assists in providing balance, in which the price sustains both the producers and customers. At times, the government can try to control the economic process with the aim of pushing the market in a certain direction, and this interrupts the market mechanism.

A market mechanism can exist in either: • Free market economy • Planned economy • Mixed economy

Planned economy • Is the public sector, that is, both the local and central government owns the public sector.

Free market economy • Is where all the resources are given to the private sector, that is, individuals, groups of individuals and households.

Mixed economy • Is all the resources are distributed to both the public and private sectors.

• Both free and planned economies are typically theoretical, while the mixed economy is the most common. Economists are always trying to study the buying and selling habits in a specific market. By examining the buying and selling habits on a smaller scale, the economists believe that they can make assumptions concerning economic habits on a larger scale, like the economy of a country. Other economists believe that the market requires some external stimulation for it to perform efficiently. Some feel that the market mechanism offers the most efficient model of a market’s production and consumption.

• How market mechanism works Imagine that a company in the US produces a batch of 50 shirts, and sets the price of each shirt at $150. Once the shirts go to the market, only 10 are sold. The company responds to this by reducing the price to $90, and the remain 40 shirts are bought quickly. In response to this, the company increases the price to $120, and the sales start to match the production levels. In this scenario, the market mechanism decided that $120 was the perfect price for the shirts, and this was the balancing point in which the production and consumption came together. The company reduced the price to increase buying and then increased the prices after more production was stimulated. This is a perfect example of the law of supply and demand, and free markets operate this way, without any external stimulation.

DETERMINATION OF DEMANDS When price changes, quantity demanded will change. 1. INCOME

Changes of incomes of people will change their demand for goods and services.

2. POPULATION

The population makes up the group of consumers who will buy the product. The higher the population, the more consumers and the higher will be the demand for the good.

3. TASTES AND PREFERENCES

When the public’s desires, emotions, or preferences change in favor of a product, so does the quantity demanded. Likewise, when tastes go against it, that depresses the amount demanded. Brand advertising tries to increase the desire for consumer goods.

4. PRICE EXPECTATIONS When people expect that the value of something will rise, they demand more of it, especially basic commodities. The reason for such consumers' behavior is to economize. This is a general tendency of buyers.

5. PRICES OF RELATED GOODS • Substitute goods are those that are used in place of each other. In case of substitute goods, an increase in the demand for one good leads to a decrease in the demand for the other good. • Complements are goods that are used together. For complementary goods, an increase in the demand for a good will lead to an increase in the demand for the complement since they are used together.

Determinants of Supply

1. PRODUCTION COST Since most of private companies' goal is profit maximization. Higher production cost will lower profit, thus hinder supply. Factors affecting production cost are: input prices, wage rate, government regulations and taxes, etc.

2. TECHNOLOGY Technological improvement help reduce production cost and increase profit, thus stimulate higher supply.

3. NUMBER OF SELLERS More sellers in the market increase the market supply.

4. EXPECTATION FOR FUTURE PRICES

If producers expect future price to be higher, they will try to hold on to their inventories and offer the products to the buyers in the future, thus they can capture the higher price.

What are 'Market Dynamics’? • Market dynamics are pricing signals that are created as a result of changing supply and demand levels of products and services in a given market. It is a fundamental concept in supply, demand and pricing economic models.

THE DYNAMICS OF DEMAND AND SUPPLY

BREAKING DOWN 'Market Dynamics' • Any change in either the supply or demand for a specific product or group of products forces a corresponding change in the other, and these variances are known as pricing signals. In a free or open market in which no entity has the ability to influence or set prices, the price of a good is determined by the market, which consists of the buyers and sellers, collectively. A single entity or group, therefore, is unable to have a significant effect on market dynamics.

Market Dynamics of Securities Markets • Economic models attempt to account for market dynamics in a way that captures as many relevant variables as possible. However, not all variables are easily quantifiable. Models of markets for physical goods or services with relatively straightforward dynamics are, for the most part, efficient, and participants in these markets are assumed to make rational decisions. In financial markets, the human element of emotion creates a chaotic and difficult-to-quantify effect that always results in increased volatility.

• On the one hand, in financial markets, there are financial professionals who are knowledgeable about how markets work and, therefore, make rational decisions that are in the best interests of their clients based on all available information. On the other hand, there’s a sizable number of market participants who are not professionals and possess limited knowledge about markets. This includes small-tointermediate traders who seek to “get rich quick,” or investors who attempt to manage their own investments rather than seek professional advice. • Also included in this group are self-proclaimed professionals who are sometimes dishonest. For savvy professionals, all decisions are based on comprehensive analysis, extensive experience, and proven techniques.