Demand and Supply

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INTRODUCTION
The price of a commodity such as wheat increases when there is an increase in demand and decrease in supply. This particular case is currently being experienced in China and South Africa. Preceding the price change, changes in demand and supply has to occur. There are factors which cause this change in demand and supply. FACTORS WHICH CAUSE CHANGES IN DEMAND AND SUPPLY

China recently experienced a drought causing the low production of wheat. Low production of wheat resulted in a low number of suppliers of wheat. The low number of suppliers caused the decrease in the supply of wheat. China is the world’s largest consumer of wheat. This is due to China’s large population. And because of the country’s large population and the decrease in the supply of wheat due to the drought, the demand of wheat increases. Therefore China is currently focusing on the importing of wheat and the reduction of the supply of wheat. In South Africa, the supply of wheat decreased this year due to the low number of plantings of wheat. Less number of wheat was planted in the last planting season. This was because of the decrease in the price of wheat during the last planting season. This causes the low production of wheat and results in the decrease in the supply of wheat. But due to the increase in the demand of wheat, South Africa has to import the necessary wheat. 0

Quantity
Price
Figure 1 The Effects of a Change in Supply
a) Decrease in supply

Supply (new)
Supply (original)
S0
S1

The decrease in supply of wheat causes the supply curve in figure 1 to shift leftwards from S0, the original supply curve to S1, the new supply curve. In China this shift in supply resulted from the drought which was responsible for low wheat production, resulting in low supply of wheat. And in South Africa this shift in supply resulted from low supply of wheat resulting from the reduction in number of wheat that was planted in the last planting season due to the decrease in the price of wheat. 0

Quantity
Price
Figure 2 The Effects of a Change in Demand
a) Increase in demand

Demand (new)
Demand (original)
D1
D0

The increase in the demand of wheat causes the demand curve in figure 2 to shift rightwards from D0, the original demand curve to D1, the new demand curve. This shift in demand of wheat occurs in China due to the country’s large number of population and the country’s low supply of wheat due to drought. And in South Africa, this shift in demand of wheat occurs due to the shortage of wheat resulted from low production of wheat from the last planting season. PRICE CHANGE DUE TO THE CHANGES IN DEMAND AND SUPPLY

Since in China and South Africa there is an increase in demand of wheat and a decrease in the supply of wheat, the price of the wheat increases. 0
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100
150
200
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Quantity (tons of wheat)
Price (thousands of rands per ton of wheat)
Figure 3 The Effects of a Change in Demand and Supply
a) Increase in demand and decrease in supply
250

18
21

Supply (new)
Supply (original)
Demand (new)
Demand (original)
A
B

In China and South Africa the low production of wheat causes the decrease in the number of suppliers. This results in the low supply of wheat. The demand of wheat increases in both countries. When referring to figure 3 above, as the supply of wheat decreases the supply curve shifts leftwards. The increase in demand for wheat causes the demand curve to shift rightwards (figure 3). The increase in demand and decrease...
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