Economics Demand and Supply

Topics: Supply and demand, Economic surplus, Economic equilibrium Pages: 9 (2470 words) Published: May 29, 2012

Supply and Demand is perhaps one of the most fundamental concepts of economics. It is the backbone of a market economy. A market is defined as a group of consumers (demand) and producers (supply) of a particular product. Competitive markets are markets with many consumers and producers, so that each has very small influence on the price of that product. Supply and demand act as an economic model to show how consumers and producers interact in a competitive market. The market price of a product is determined by both the supply and demand for it. Demand refers to how much of a product is desired by consumers. Quantity demanded is the demand at a particular price, and is represented as the demand curve.( Cited, 14 February 2012.) Supply represents how much the producers can offer. Quantity supplied is the amount offered for sale at a particular price, and is represented as the supply curve. When demand and supply are equal, the economy is said to be in equilibrium. There may also be presence of disequilibrium between demand and supply too. There may be shifts in supply and demand too. (Cited . 14 February 2012. ) SUMMARY

In January 2012, China’s imports fell the most since the global financial crisis. Demand may be weaker, even allowing shutdowns of Lunar New Year factory. Imports declined 15.3% in January 2012 versus January 2011 ( the lowest since August 2009 ) , to about US$122.7billion. Exports sank 0.5% over the same period, to about US$149.9billion. There was a trade surplus of US$27.3billion, resulting from big imports drop with smaller exports drop. China’s current account surplus relative to gross domestic product ( GDP ) decreased to 2.7% in 2011 compared to 5.1% in 2010, showing that China is relying less on external demand.

The main theory that is used in the analysis of this article is Supply and Demand. The law of demand states that, if all other factors remain equal, the higher the price of a product, the lower the quantity demanded. It is undeniable that consumers prefer cheaper product. The demand relationship curve illustrates the negative relationship between price and quantity demanded. Demand Curve

Price / $
P1 P2 P3
Quantity demanded Q1 Q2 Q3 The law of supply states that, if all other factors remain equal, the higher the price of a product, the higher the quantity supplied. Producers supply more at a higher price as selling a higher quantity at a higher price increases revenue. The supply relationship curve illustrates the positive relationship between price and quantity supplied. Supply Curve

Price / $
P3 P2 P1
Quantity supplied Q1 Q2 Q3

The main economic problem faced by China in this article is the decline in China’s imports in January 2012, raising concerns that demand in the world's second-largest economy may be weaker. The data of imports drop may reflect holiday-related distortions, which is factory shutdowns during Chinese New Year, rather than deteriorations in underlying economic trends. On the other hand, some may think that China's spending has slowed markedly. China’s ability to stimulate the economy is doubted. The import drop is big while the export drop is small. China exports more than it imports, it is said to have a...
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