Shift in Supply and Demand, Research Paper Example

Maize is a food crop which apart from forming the main delicacy on African tables is used as input for various products among which include the production of bran, fuel that is, ethanol and many other products. Bran which is mainly made from maize is a poultry product without which poultry farming because almost impossible. Ethanol is fuel made from maize which is referred to as corn in the United States of America. It is depended on the production of fuel so as to serve as an alternative source to oil from fossils.

Maize in Uganda has become very expensive (ThePoultrySite News Desk, 2008). This is because its demand has risen in Southern Sudan who pays very highly for it. The suppliers have thus chosen to supply to Southern Sudan and neglect their home towns. This is because with the same input in its production they fetch more by supplying to Sudan than to their home town. Therefore it is more logical for the suppliers to supply to Southern Sudan than to Uganda. The suppliers must have based their decision on the law of supply which states that supply increases as the price increases. The suppliers’ trend proves that price and quantity supplied vary directly.

However, the suppliers’ trend has affected the supply of other goods whose production depends on the production of maize such as bran. The rising maize prices have seen the shooting up of bran prices (Graph D: price up & quantity down). This has impacted the poultry industry negatively as poultry feeds has become very expensive thus causing a rise in the consumer price of eggs. It is noted that the price of a tray of eggs rose from Sh. 5000 to Sh.5500. It is also noted that a shortage of eggs has resulted due to some of the suppliers closing shop due to the unfavorable prevailing conditions. The shortage of eggs is also attributed to the supply of eggs to Southern Sudan instead of Uganda (ThePoultrySite News Desk, 2008).

The consumer prices are thought to continue to rise as the demand of eggs is very high (Graph A: price up & quantity up). Eggs are used in homes and restaurants and from a delicacy which cannot be replaced. The high demand is evident as consumers’ line up for very many hours waiting for eggs whose price had increased from the initial Sh. 5500 per tray to Sh. 6000 per tray. Also schools in Uganda have ended up booking eggs before they have even been produced.

All in all pricing is very important as it determines the number of players in the market. In the above situation some suppliers had to close shop as their inputs were too expensive and thus beyond their reach. It also determines the behavior of the consumers and also the quantity supplied by suppliers.

The world has lately been grappling with the problem of food security. This is due to the unpredictable climatic and weather conditions experienced globally. The shift between the times of scarcity and that of glut has a profound impact on the demand and supply of products. The Banana, one of the substitute food crops, will be examined to bring this point home.

It is hard to establish the global pattern of supply and demand for bananas because of the geographical fragmentation of its market, varying costs of transportation and importing countries’ consumer policies. Even though, a few countries could be used to establish this relationship. Research has shown a considerable shrink in the global banana price (graph A).

Demand and supply determines the global banana price. Conditions of weather, production diversification and a wide range of sources influence supply. Demand on the other hand is influenced by income levels, economic and demographic patterns, consumer tastes and government policies. Bananas retail cheaply in the US due to lack of restrictions on imports and lower transport costs compared to most European Union countries. Japan has high prices because of high tariffs, enormous wage bills and lack of retail competition (Graph B).

Where large companies compete for the scarce bananas, the producers have the advantage of bargaining for higher prices. Large scale banana producing countries such as Ecuador, Columbia and Costa Rica have set the lowest price a producer can be paid. These also enjoy economies of large scale production and cheap labor which lowers costs of production. The Caribbean countries have small steep farms, infertile soil, poor weather conditions and high transport costs. This forces them to price their bananas highly, hence putting off potential buyers. Graph C shows the value of banana exports (INFO COM, n.d).

No evidence however links price determination to large producers and suppliers as retailers play an important moderating factor.

Carbon Fiber demand and supply has been seriously affected. This is because the demand is no longer high as before. This has in turn reduced their sales. The companies have decided to cut expenditure on technology. The new carbon fiber plant located at Otake City within Japan belonging to Mitsubishi Rayon Co. Ltd, has postponed production commencement for about one year. Construction has been temporarily stopped, due to decrease in sales. This means that the supply of Carbon Fiber in the market will reduce. Although the company has hopes of increasing vehicles and pressure vessels sales, in several market sectors demand has been severely affected. This is expected to stay stagnant for a while since new applications have been delayed too. This clearly demonstrates how technology can affect supply of a certain product.

Otake line is scheduled to start its operations in fourth sector 2010. This will increase the sales since the targeted production capacity is around 5.95 million lb, annually. This will lead to production of Pyrofil P330 Series and 50K to 60K standard-modulus carbon fiber of high performance chiefly for industrial use. Mitsubishi has established that to meet the current demand and ensure there is continuous supply to present customers; production has to be increased within 2009, through adjustment of product mix. When demand of their product increases, they will increase their supply in the market (Composite World, 2009).

More so, in Cytec Industries’, the company expects demand reduction for carbon fiber. Hence Cytec has resolved to delay the expansion of carbon fiber project in Greenville, S.C. for a year. This will decrease the company’s planned capital expenditure for 2009 with $20 million (Stewar, 2009). Once the demand goes up and the sales are likely to increase, the company will finally complete expansion and fiber production will start. This means that when these two companies halt the production in these lines for a while, the supply of their products will reduce for that time.

However, AKSA has plans of entering carbon fiber market. They target a period that carbon demand experiences high demand and consumers end up being underserved. It has even devised ways of marketing their product to industrial end-users among Americans. AKSACA will produce all strengths of fiber. Also Sichuan Xinwanxing Company has launched construction of a carbon fiber plant. This will produce about 1,000 metric tones of fiber annually. Upon completing the project, the company believes that sales from this line will boost company’s profits with about $731.8 million per annum. The company targets the time that demand of carbon fiber is high and consequently they will supply more in the market. This means that technology improvement within the firm will lead to increased production, hence increase in supply.

Graph C, applies when it comes to AKSACA, The technology at the company has improved. Techniques of marketing and construction of plant contribute to technology improvement. This will hence lead to production of more carbon fiber, thus the supply of the fiber carbon will increase. This will in-turn decrease equilibrium price and the equilibrium quantity will increase. Also when Otake begins the production, it is clearly indicated that they expect rise in sales. This is because with improvement in Technology, the supply of their product is likely to go up because the production is high. Quantity of the product in the market will increase.

Graph D also is illustrated in production of carbon fiber. Technology has been largely affected. The new carbon fiber plant located at Otake City within Japan belonging to Mitsubishi and Cytec Industries’ has stopped production. This means, when technology fails in these two companies, no manufacturing of carbon fiber at the affected lines. Hence within these two lines, no production at all will occur. Therefore, the quantity of carbon fiber being produced will reduce. Thus the quantity of the product will decrease in the market, reducing the supply. Eventually, this will lead to rise in equilibrium price and decline in equilibrium output (Composite World, 2009).

Number of sellers will affect the demand by influencing the price of goods. In the event of many sellers of a particular good then the price of the good tends to dwindle and thus its demand increases. The supply of the good will increase because of the many suppliers and thus the demand of the resources of production will also increase.

Income and taxes are the strongest variables. The former variable causes demand to change while the latter variable causes supply to change.

The discussed variables have resulted in the use of the supply and demand model which has resulted in the existence of a competitive market and thus the existence of an equilibrium price. Equilibrium price thus determines the number of resources that the suppliers will be willing to use to fit in the prevailing market conditions. Thus the demand and supply are intertwined with the resources’ allocation.

Among the factors influencing the elasticity of supply are; spare capacity, available that is if a firm has huge free space then they are able to increase their output without incurring extra costs thus the supply will be elastic, the time period over which the factors of production are required to change with regards to the environment; in the short-run the supply will be inelastic and vice versa, if the production of goods is flexible then the supply will be elastic and vice versa, and lastly availability of stock; if the producers have a large stock reserve then they will be able to respond to the market change effectively thus supply will be elastic.

The government regulates goods and services by giving out subsidies, enforcing taxes and embargos. The embargos set on various goods serves to regulate their supply and thus set a suitable market rate that will also determine the cost of resources which will ensure that the fair pricing of resources.

Independent variables such as income will change in the future due to inflation or deflation. Currently the world is suffering from major recession which has led to the laying back of workers and thus a reduction in their purchasing power (Souster, 1998).

Reference

Info Com. (n.d). Market Information in the Commodities Area: Prices. Retrieved August 22, 2009 from http://www.unctad.org/infocomm/anglais/banana/prices.htm

ThePoultrySite News Desk. (11 Dec. 2008). Rising Maize Prices Leads to Shortage of Eggs. Retrieved August 22, 2009 from http://www.thepoultrysite.com/poultrynews/16649/rising-maize-prices-leads-to-shortage-of-eggs

Composite World. (2009). Supply and demand: Advanced fibers. Retrieved August 22, 2009 from http://www.compositesworld.com/articles/supply-and-demand-advanced-fibers.aspx

Souster, B. (1998). The theory of supply and demand. Retrieved August 22, 2009 from http://www.accaglobal.com/archive/sa_oldarticles/43856