Reflect on what you have learned about the model of supply and demand (market analysis) from taking this course
Exogenous factors, which are taken as constant factors when market demand and supply are determined, can change as a result of the external environmental factors. These changes have substantial effects on the demand and supply; hence on the equilibrium price which has to change to meet the new demand level. Otherwise, disequilibrium can occur resulting in an unfavorable market position. This course taught me the linkage not only between demand and supply but also the connection between the macro and microenvironment which can have a substantial impact on the consumer and producer. In case of price changes, the consumers look for viable substitutes and the producers seek less costly production processes.
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The invisible hand, in this case, is the automatic adjustment in the price as a result of the variations in the demand and supply forces. Economic forces, cost of production is such non-price determinants that are assumed to be constant are proven to have substantial effects on the market forces. The producers also seek to produce alternatives in such “what-if” scenarios-these alternatives allow the producers to capitalize on such occasions when the economic situation is dire. Hence, in conclusion, it has been seen that due to non-price determinants the market scenario can be affected in some ways forcing the consumer and producer to look for substitutes.
Reflect on how the model of supply and demand (market analysis) was applied in your case study of a specific market in the news. What about your market did it explain?
The market scenario depicted in the news article is that of falling sales, rising costs of production shift in the demand to adjust to these economic changes, and the inability of producers to quickly adjust to this demand shift. The top three car manufacturers of the US saw a substantial loss in sales due to the economic crisis which saw a major rise in oil prices. Hence, demand for more fuel-consuming cars such as SUVs went down substantially showing that demand is hugely affected by macroeconomic influences.
The exogenous influences such as oil prices etc were highlighted as a major reason for this demand shift. Hence, the price could not be adjusted substantially to offset this loss and the car manufacturers experienced substantial revenue losses. The consumers had to shift their demand for more fuel-efficient cars highlighting the impact that economic forces have on-demand forces. Hence, the market mechanism is depicted quire effectively through this news item as it saw demand adjusting to a crunch in the economy.
From the supply side, the producers saw an excess supply arising for SUVs, etc due to their greater fuel consumption and higher prices. The greater demand for more fuel-efficient cars could not be met by higher production levels as the period for the demand rise was not sufficient for the production levels to meet this demand rise. Hence, a lot of companies lost out on substantial sales. Therefore, highlighting the market mechanism; demand shifting due to macro factors, and the production suffering due to lack of time availability. The supply-side hence was shown to suffer on both counts of production costs and insufficient time available to counter the demand.
Reflect on how your understanding of supply and demand analysis will potentially benefit you in the future, both in your career and in your everyday life?
From what can be ascertained from the above market analysis, it has been seen that the consumer needs to always have substitutes in mind for economic or any crisis. Hence, for me, it would be important that I should have an idea about the current market conditions and a forecasted picture of the market as well to adapt quickly to the market conditions. Not only as a consumer but even as a producer for my future career life-by having a forecasted idea about the market conditions, one can be prepared for any adverse changes so that some of the losses can be offset.
Isidore, C “Auto Sales Plunge”2008,
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