Economics 1

We live in an emerging economy, where all factors of productions and their prices have to be considered before one is able to produce a viable good for consumers to purpose. In producing a good, producers have to find an open gap in the market, for a good that will provide them with the greatest benefit. They just need to make sure that, the good will be appealing to consumers or their aimed target market. If the good produced does not appeal to the public and exceeds their budget, buyers do not mind going on a search to find a more suitable and affordable substitute good. These are just a few of the factors that sellers have to look into before putting their goods on the market, these factors also have a way of influencing the demand and supply of goods.

Van Rensburg et al (2011:36) “A market is an arrangement that brings buyers and sellers into contact.” Bringing sellers and buyers into contact, provides each party to involve themselves in trade, price negotiation is not always possible. If customers notice very high prices, they immediately start to purchase less of that item which will have an impact on the quantity supplied, the quantity demanded and the equilibrium price of the good or of the service that was rendered. A market is known to be a very unpredictable arrangement, as there are variables that could be about a drastic change to the market. These variables include a change in the buyer’s income and preferences, price fluctuations and even natural disasters.

Parkin et al (2013: 53) “The six determinants of demand are the price of related goods, expected future prices, income, expected future income, population and preferences.” On the other hand supply has five main determinants namely “prices of productive resources, prices of related goods produced, expected future prices, the number of suppliers and lastly, technology.” Parkin et al (2013: 57)

When the price of a good decreases, both the buyers and the sellers are affected. The buyer can now afford to get more of the good as it possibly fits into their budget, hence they start demanding more, but the supplier loses out in this case, as they now have to supply way more at a lower rate, and that will increase their revenue much slower. A price increase to the buyer means that they probably cannot afford the good, therefore losing out on ownership, for the sellers it means they lose out on possibly revenue.

BDlive (2015: 1) “Reuters reported that copper dropped more than 6% to below $5500 a tonne.” The drastic decrease in the price of copper had a major impact on the prices of other metals because copper is used in a wide variety of activities. Copper is seen as an omen for the global economy because of its usefulness in a large number of activities. Due to the decrease in the price of copper, the quantity demanded will now also increase because buyers now want more because it is at a lower price, this causes a shift along the demand curve, therefore more has to be produced in order not to encounter a surplus of copper. The sellers can never be happy with this, because it means that they not have to supply more at a much lower price, therefore we have an increase in supply, which means the supply curve will shift to the right. Sellers are thus aware that they wont get as much revenue as they would have, if the price has not gone down. The market has now moved to a new equilibrium. (Figure 1)

According to BDlive (2015:1) “Copper’s fall suggests further deflationary pressures could be building up.” This does not look for global economic growth, because copper is a fundamental raw material for a lot of products. It seems as though the expected future price of copper will still be decreasing, which means it has an effect on the demand and because other manufactures use it when producing good, it influences supply because it is a productive resource. The market thus experiences a decrease in demand because the expected future price will decrease even more, therefore the opportunity cost of buying the good today is relatively high to what it is expected to be, thus a shift to the left of the original demand curve. The market will also experience an increase in supply because the lowest price at which produces are will to sell at decreases, thus a shift to the right of the original supply curve. (Figure 2)