economic demand supply

Topics: Supply and demand, Economic equilibrium, Elasticity Pages: 2 (469 words) Published: April 25, 2014
SHIFT IN SUPPLY OR DEMAND, CHANGING IN EQUILIBRIUM
Based on the article titled “Argentine bread prices keep rising as grain scarcity kicks in” as my analysis topic regarding of change in supply or demand, changing in equilibrium. The article that I choose was from United Press International (UPI)’s website which is http://www.upi.com/ and it was published on Tuesday, October. 29, 2013. Based on the article, it shows that the price of bread increase due to the scarcity of wheat which is the main source of making bread.  

Figure 1

Figure 1 shows that the E0 is initial market equilibrium, the equilibrium price is P0 and the equilibrium quantity is Q0. Suppose that decrease in supply shifts the supply curve from S0 to S1. Given that the new supply curve S1, the quantity supplied by producers at the initial market price P0 decrease from Q0 to Q1. Because the quantity supplied by producers at P0 is smaller than the quantity demanded by consumers at P0, a shortage develops at P0. The shortage cause consumer to bid up the market price. As market price increase, the quantity demanded, Qd, decrease along D0 and the quantity supply, Qs, increase along S1. The quantity demanded, Qd continues to decrease and the quantity supplied, Qs, continues to increase until the shortage is eliminated and the quantity demanded equals the quantity supplied at P1 and Q1 with the new equilibrium point E1.

Based on the Law of Supply one of the factor that shifted the supply curve is production and costs. When input of making bread expands, a firm’s production costs rise, therefore a higher price is needed to justify the extra output and cover these extra costs of production because of the For commodities such as wheat, the effect of climatic conditions can apply a great influence on market supply. Unfavorable weather conditions will lead to a poorer harvest, lower yields and therefore a decrease in supply. Changes in weather condition can therefore have an effect on prices...
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