Detailed knowledge of the concept of supply and demand is critical for any individual planning to start a small or large business. At equilibrium, there is no shortage or surplus of the targeted goods. This paper applies this theory to the presented case study of a small ice cream stand called “Ice-Campusades”.
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Reasons for Fluctuation
The presented scenario reveals that the sales for ice cream have been fluctuating. There are days when the product is not sold. Sometimes the ice creams are inadequate for the available customers. This occurrence is attributable to various factors that influence demand. Since the targeted product is ice cream, the first possible cause of this kind of fluctuation is that of income availability. Coppock and Mateer indicate that many people tend to have disposable money at the beginning of every month (34). Such an example explains why the available ice creams might be insufficient for the targeted consumers during this period.
The second possible factor is that of weather. During cold days, the number of people purchasing this product will remain low. The opposite is true during hot days or periods. The third possible cause of this outcome is that of personal taste and preference (Coppock and Mateer 42). Although the same variety of ice cream is ordered every day, the scenario indicates that they are sourced from different supplies. When the taste or quality is poor, chances are high that more customers will not purchase them. A superior sweetness will encourage more people to buy the targeted ice creams.
Competition and Pricing
The decision to allow a competing student in the selected campus to sell ice creams will transform the existing level of demand. The performance of each of the two businesses will also change significantly. It is agreeable that the presence of another provider of this product will result in price reduction. The first issue to consider is that the number of students on campus will have remained constant (Coppock and Mateer 65). This is a clear indication that the same potential customers will have another option when they decide to purchase ice cream. This development represents an increase in supply.
The second aspect that comes out from this scenario is that the demand for the intended ice cream will have remained the same. This occurrence will mean that supply has increased without altering the level of demand. According to the supply and demand model, any increase in supply within a specific market will result in a surplus. This means that the price will decrease significantly if the rate of demand remains unchanged.
From this analysis, it is evident that more students will be willing to purchase ice cream from the colleague who offers competitive prices (Coppock and Mateer 73). This example explains why the other entrepreneur should factor in such changes when making his or her decisions. This is the case because the theory indicates that any rise in supply will force the equilibrium price to reduce significantly.
The above discussion has explained why the supply and demand theory is a powerful theory for all entrepreneurs. The model describes how any change in available products or services will affect prices significantly. The analysis has also identified a number of factors that have the potential to impact the purchasing and consumption behaviors for ice cream. These aspects can guide the two students to make evidence-based decisions in order to achieve their business aims.
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Coppock, Lee, and Dirk Mateer. Principles of Macroeconomics. 2nd ed., W. W. Norton, 2017.