Microeconomics: Supply and Demand

Topics: Supply and demand, Microeconomics, Price elasticity of demand Pages: 14 (3916 words) Published: August 25, 2013
MICROECONOMICS
Prices of Onion (Deshi and Indian) go up due to shortage of supply 1. Introduction:
Microeconomic theory is perhaps the most important course in all economics and business programs. I am just trying to discuss about the role of theory or models in microeconomics, discuss the basic methodology of economics, and distinguish between positive and normative analysis. Our main target in this assignment is to write an essay about microeconomics related topic which is published by the newspapers recently. After studying the newspaper I have got a microeconomic related topic which prices go up, as a result, demand will decrease. According to my previous study knowledge, I had some ideas about production cost, import cost, transportation cost and other similar cost by which we can determine the cost and profit. After taking the microeconomic course, it seems to me that the scenario is different. Here we need not only production and other similar cost and profit but also supply and demand, changing situation, income and substitution effect, equilibrium price, elasticity, cost behavior, market position etc.. Here my selected product is Onions (Deshi and Indian). This is because; onions are one of the most important commodities of our daily meal. Recently the prices of onions go up in the retail market not only Deshi onion but also Indian onion. Retailer said that, the prices of local onion increased by Tk. 10 a kg and was selling at Tk. 70 a kg while the just harvested onion was retailing at Tk. 45 a kg and Indian onion at Tk. 40 a kg over the last week due to supply shortage. So that, I have decided to write an essay about onion (Deshi and Indian) where Indian onion is the substitute of Deshi onions including the demand and supply of onions, equilibrium price, effect on price, substitution and income effect, production function, elasticity, cost function and market structure of onion.

2. Data Collection:
After studying the newspapers, I have found a microeconomic related topic that is, “Onion, flour, vegetables, fish prices go up” which is published by Financial Express on 15th December, 2012 and ‘Prices of onions, green chili skyrocket’ which is published by New Age on 22 December, 2012. So I have taken two commodity Deshi onion and Indian onion. For getting more information I visited 2 markets which is nearest of my area due to know about the supply and current and previous price and demand for two types of onions. a) Nayabazar Market

b) Babubazar Market

3. Demand:
3.1. Law of demand:
We know that, consumer purchase more products when the price is lower and they buy fewer products at higher price where other things remain the same. We also know that, there is an inverse relationship between price and quantity demanded according to the law of demand. So the slope of demand curve is downward.

3.2. Shifting of demand curve:
Demand curve can be shift inward or outward. Demand curve can shift inward or outward for the following reasons-

a) Own price (PX): If own price rises then demand curve will shift inward and if own price falls then demand curve will shift outward. Here the price of Deshi and Indian onion increase so demand curve will shift inward. b) Cross price (PY): If the price of substitute goods rises or complementary goods falls then the demand curve will shift outward and if the price of substitute goods falls or complementary goods rises then the demand curve will shift inward. c) Income: If consumers income changes then the demand curve also may changes. d) Taste: Consumers taste is constant but it has a good impact on changing demand curve. e) No of buyers: If no of buyers increase in the market then the demand curve will shift outward and if no of buyers decrease in the market then the demand curve will shift inward. 3.3. Aggregate demand schedule for Deshi oinion:

Persons| Tk. 45 (3/12)| Tk. 50 (9/12)| Tk. 60 (20/12)| Tk. 65 (22/12)| Tk. 70 (21/12)| A.| 14| 12| 11| 8|...
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