AG-114-BSA-2A-GROUP-1 (1)sjjsauzbbjj.pptx

Report in introduction to commodities

1. AG 114 INTRODUCTION TO AGRICULTURAL COMMODITY SYSTEM BSA- 2A GROUP 1

2. Law of Supply and Demand

3. GROUP 1 REPORTERS; BANERY J. JIMENEZ MIA BANDADA MARK GERCEL ALEGONERO CHRISTEL JOY FAMA JOHNA DE MAYO BSA 2-A

4. At the end of this topic , we should be able to, 1. Define the law of supply and law of demand, 2

5. Farmers are the small and marginal farmers who make a living through growing and selling food. They practice farming even though it does not pay much because the alternate options of livelihood are not good enough. This set of people also includes farms that maybe larger in size but do not follow modern industrialised machinery and processes for growing food. Essentially, these are people who cannot afford high input costs and do not have the capacity to hold the inventory for long. INTRODUCTION

6. this economic principle was first proposed by Philosopher John Locke to shift the control of the lending rates from the hands of the government to the free market. The argument was that total government control led to unintended consequences. He, however, did not use the term ‘Supply and Demand’.

7. Supply and demand in modern economics has been historically attributed to John Locke in an early iteration, as well as definitively used by Adam Smith’s well-known “An Inquiry into the Nature and Causes of the Wealth of Nations,” published in 1776.

8. The term was used for the first time in 1767 by Sir James Steuart who was mainly concerned about the impact of supply and demand on labourers. Interestingly, Sir James Steurat was a political economist. Political economy is a discipline which takes a broader view of economics, rejecting the narrow focus on ‘pure markets’.

9. What Is Supply? Supply is a fundamental economic concept that describes the total amount of a specific good or service that is available to consumers. Supply can relate to the amount available at a specific price or the amount available across a range of prices if displayed on a graph.

10. Supply is the basic economic concept that describes the total amount of a specific good provided to the market for consumption. Supply is heavily correlated to demand, and the two concepts are intertwined to create market equilibrium which defines the availability of goods in the market and the prices they are sold for. Supply is graphically depicted, and the supply curve maps the relationship between price and quantity by being shown as an upward-sloping line. Supply is determined by market demand, cost constraints, consumer preferences, and government policy. Supply is often broken into short-term and long-term supply, though there are other types of supply.

11. Demand The contrasting economic concept to supply is demand. Demand represents the consumer's desire to obtain a product. When a broad set of consumers are more willing to buy a product or service, that product or service is said to have higher demand. Like supply, demand is directly related to a given price. For example, most consumers would be interested in the latest smartphone if the given market price was $1. Increasing the price to $1,000 shifts broad consumer desire for the product. All else being equal, price and demand are inversely related; as one increases, the other decreases).

12. Monopoly A monopoly is a condition in which one seller controls the supply side of the market. Government regulation often attempts to control market conditions to ensure fair competition on the supply side. This is to ensure consumers are able to buy goods at a fair price instead of a single supplier dictating what the market price will be.

13. Competition To avoid a monopoly, there must be competition. This means different companies must supply similar goods to consumers. Consumers then must choose which items to buy. Competition is meant to breed price competition, innovation, and market control to ensure that a single market participant doesn't have too much power over consumers.

14. Oversupply Oversupply occurs when there is an excessive abundance of an item that consumer demand can't satiate. Consider an abundant harvest that results in an oversupply of crops; a result impact may be reduced prices to consumers to further incentivize consumption of this good compared to a scarcer good.

15. Scarcity Scarcity is the opposite of oversupply. Consider a failed crop year ruined by inclement weather. Because less supply is available, it may be more difficult for consumers to obtain a specific good. This may be prevalent due to supply chain issues causing manufacturing delays or government policies pausing specific activity.

16. Suppy Elasticity Price elasticity measures how the quantity of goods available will respond to a change in the unit's price. An elastic supply means that a small change in market prices will result in a relatively large change in the availability of that good from suppliers. An inelastic supply refers to goods whose supply does not change significantly in response to price changes. Elasticity can be determined from the slope of the supply function. A relatively steep supply curve indicates a large response to price changes, indicating an elastic supply. If the supply curve appears relatively flat, then supply is inelastic.

17. Types of Supply Short-Term Supply Short-term supply is the inventory immediately available for consumption. When short-term supply has been exhausted, consumers must wait for additional manufacturing or production for more goods to become available. Short-term supply is the maximum amount consumers can immediately purchase. Long-Term Supply Long-term supply considers consumer demand, material availability, capital investment, and macroeconomic conditions. These factors all dictate how a company should shift manufacturing to meet long-term demand. Though long-term supply may only be able to grow gradually over time, suppliers have greater control over increasing or decreasing long-term supply by enacting operational strategies. Joint Supply

18. Joint Supply Joint supply occurs when the manufacturing of one good will result in the byproduct of another good. Regardless of the demand for the byproduct good, it may be manufactured and supplied simply in response for demand of the other product. For example, the production of crude petroleum results in gasoline, fuel oil, kerosene, and asphalt. The supply of one item may increase simply due to greater demand of other items. Market Supply Market supply refers to the daily supply of goods often with a very short-term usable life. For example, grocery stores may measure their market supply of fresh produce or fish. Each of these goods is exclusively dependent on the supplier's ability to harvest these products, as additional supply may be out of the control of the farmer. Composite Supply Opposite of joint supply, composite supply is the offering of a product that is multiple products packaged together. Both products must be offered together, and the maximum supply is equal to the smaller of the two products. For example, a company manufacturers pints of ice cream that are sold along with compostable spoons. Neither product is sold individually. In this example, the amount of composite supply is the lower of the quantity of pints of ice cream or composable spoons.

19. What is the Law of Supply? The law of supply is a basic principle in economics that asserts that, assuming all else being constant, an increase in the price of goods will result in a corresponding direct increase in the supply thereof. The law works similarly with a decrease in prices. The law of supply depicts the producer’s behavior when the price of a good rises or falls. With a rise in price, the tendency is to increase supply because there is now more profit to be earned. On the other hand, when prices fall, producers tend to decrease production due to the reduced economic opportunity for profit.

20. The Law of Supply. The law of supply predicts a positive relationship between pricing and supply. As prices of goods or services rise, suppliers increase the amount they produce — as long as the revenue generated by each additional unit they produce is greater than the cost of producing it. Seeing a greater potential for profits, new suppliers may also enter the market.

21. Law of Supply Formula QxS = QxS = Φ (Px) QxS – Quantity supplied of commodity/good x by the producers Φ – Function of Px – Price of commodity/good x

22. factors influencing law of supply 1. cost of production - changes in the cost of raw materials, labor or other inputs can affect supply. If production costs increase, producers may reduce their supply to maintain profitability. 2. technology - technological advancements can improve production efficiency and lower costs, leading to an increase in supply. 3. governement policies - such as taxes , subsidies , and regulations can impact supply. taxes and regulations can increase production costs , leading to a decrease supply. 4. number of suppliers - an increase in the number of suppleirs in a market will generally lead to an increase in the overall. 5. expectations - producers expectations about future prices or demand can also influence their current supply decisions.

23. Consumer Demand. As more customers demand a good, companies will focus on increasing the supply of that good. Though this may increase inventory, this may also be an indicator that high demand will cause inventory shortages until long-term production can meet short-term market demand. Material Costs and Availability. Manufacturers are often limited by the products used in the manufacturing process. Whether it is shortages of specific goods or delays in the delivery process, a company can only make a product if it has the consumable goods to convert into a final product. Natural Factors. Should inclement weather damage crops, the agriculture sector may have no choice but to undersupply the market. On the other hand, favorable weather may result in the strongest yields. Economic Conditions. As macroeconomic conditions worsen, companies may choose to slow production, decrease long-term investments, or wait to react to consumer demand and make products accordingly. Alternatively, should credit be easily accessible for cheap, companies may be more likely to build inventory, incur additional expenses, and risk manufacturing additional goods to experiment in new markets.

24. Exceptions to the Law of Supply Business Closures. When companies are being liquidated or forced to sell assets, they may be incentivized or required to sell inventory and convert goods to cash. This may be the case even when goods are being sold at a less-than-favorable price. Uncontrollable Products . Consider how limited resources such as farmland constrain the amount of supply. Even if prices turn more favorably for farmers, it may be difficult for industries with supply constraints to manufacture more goods. Monopolistic Industries . The basic laws of supply are foregone when only a single commodity seller exists. This single seller may be the price maker and may dictate how many items are placed on the market at any given price. Perishable Goods . Certain goods may have a limited shelf life. At a given point, companies may be incentivized to sell a product at a lower price to yield any level of revenue (as opposed to a total loss). Rare/Collectible Items . A price premium often occurs for rare or collectible items whose supply may be reduced to a single instance. For this reason, there may be a steeper, less predictable supply curve that only exists at certain levels of supply.

25. What is demand? Demand simply means a consumer’s desire to buy goods and services without any hesitation and pay the price for it. In simple words, demand is the number of goods that the customers are ready and willing to buy at several prices during a given time frame. Preferences and choices are the basics of demand, and can be described in terms of the cost, benefits, profit, and other variables. The amount of goods that the customers pick, modestly relies on the cost of the commodity, the cost of other commodities, the customer’s earnings, and his or her tastes and proclivity. The amount of a commodity that a customer is ready to purchase, is able to manage and afford at provided prices of goods, and customer’s tastes and preferences are known as demand for the commodity.

26. Types of Demand Price demand: It refers to various types of quantities of goods or services that a customer will buy at a quoted price and given time, considering the other things remain constant. Income demand: It refers to various types of quantities of goods or services that a customer will buy at different stages of income, considering the other things remain constant. Cross demand: This means that the product’s demand does not depend on its own cost but depends on the cost of the other related commodities. Direct demand: When goods or services satisfy an individual’s wants directly, it is known as direct demand. Derived demand or Indirect demand: The goods or services demanded or needed for manufacturing the goods and satisfying the consumer indirectly is known as derived demand. Joint demand: To produce a product there are many things that are related to each other, for example, to produce bread, we need services like an oven, fuel, flour mill, and more. So, the demand for other additional things to produce a product is known as joint demand. Composite demand: A composite demand can be described when goods and services are utilised for more than one cause. Example: Coal

27. Determinants of Demand Product cost: Demand of the product changes as per the change in the price of the commodity. People deciding to buy a product remain constant only if all the factors related to it remain unchanged. The income of the consumers: When the income increases, the number of goods demanded also increases. Likewise, if the income decreases, the demand also decreases. Costs of related goods and services: For a complimentary product, an increase in the cost of one commodity will decrease the demand for a complimentary product. Example: An increase in the rate of bread will decrease the demand for butter. Similarly, an increase in the rate of one commodity will generate the demand for a substitute product to increase. Example: Increase in the cost of tea will raise the demand for coffee and therefore, decrease the demand for tea. Consumer expectation: High expectation of income or expectation in the increase in price of a good also leads to an increase in demand. Similarly, low expectation of income or low pricing of goods will decrease the demand. Buyers in the market: If the number of buyers for a commodity are more or less, then there will be a shift in demand.

28. LAW OF DEMAND is the fundamental principle of economics that describes the relationship between the price of a good or service and the quatity demanded by consuers. it states that, all else being equal , as the price of a good or service increases, the quantity demanded will decrease, vice versa.

29. The Law of Demand The law of demand is interpreted as ‘the quantity demanded of a product comes down if the price of the product goes up, keeping other factors constant.’ In other words, if the cost of the product increases, then the aggregate quantity demanded decreases. This is because the opportunity cost of the customers increases that leads the customers to go for any other substitute or they may not purchase it. The law of demand and its exceptions are really inquisitive concepts. Consumer proclivity theory assists us in comprehending the combination of two commodities that a customer will purchase based on the market prices of the commodities and subject to a customer’s budget restriction. The amount of a commodity that a customer actually purchases is the interesting part. This is best elucidated in microeconomics utilising the demand function.

30. Some major definitions of the Law of Demand are as follows: "Law of Demand states that people will buy more at lower prices and buy less at higher prices, if other things remaining the same."- Prof. Samuelson. The Law of Demand states that amount demanded increases with a fall in price and diminishes when price increases." - Prof. Marshall "According to the law of demand, the quantity demanded varies inversely with price." –Ferguson Marshall:-“The greater the amount to be sold the smaller must be the price” Benham:-“Usually a larger quantity of commodity will demanded at lower price that a higher price”

31. Influencing demand factors 1. income - as consumers incomes rise, they tend to demand more of most goods and services, specially normal goods. 2. prices of related goods - the deand for a good can be affected by the prices of its substitutes and complements. 3. consumer tastes and preferences - changes in consumer tastes and prefereces can significantly impact demand. 4. expectations - consumers expectation about future prices or availabilty can influence their current demand. 5.populaton - changes in population size or demographics can affect the overall demand for goods and services.

32. Exceptions to law of demand 1. Giffen goods: these are those inferior goods on which the consumer spends a large part of his income and the demand for which falls with a fall in their price. The demand curve for these has a positive slope. The consumers of such goods are mostly the poor. a rise in their price drains their resources and the poor have to shift their consumption from the more expensive goods to the giffen goods, while a fall in the price would spare the household some money for more expensive goods. which still remain cheaper. These goods have no closely related substitutes; hence income effect is higher than substitution effect. 2. Commodities which are used as status symbols: Some expensive commodities like diamonds, air conditioned cars, etc., are used as status symbols to display one’s wealth. The more expensive these commodities become, the higher their value as a status symbol and hence, the greater the demand for them. The amount demanded of these commodities increase with an increase in their price and decrease with a decrease in their price. Also known as a Veblen good. (In economics, Veblen goods are a group of commodities for which people's preference for buying them increases as their price increases, as greater price confers greater status, instead of decreasing according to the law of demand.) 3. Expectations regarding future prices: If the price of a commodity is rising and is expected to rise in future the demand for the commodity will increase. 4. Emergency: At times of war, famine etc. consumers have an abnormal behaviour. If they expect shortage in goods they would buy and hoard goods even at higher prices. In depression they will buy less at even low prices. 5. Quality-price relationship: some people assume that expensive goods are of a higher quality then the low priced goods. In this case more goods are demanded at higher prices.

33. Characteristics of law of demand There is Inverse relationship between price of commodity and its demand. Price is independent variable Demand is dependent variable on price of goods.

34. DEMAND CURVE (graphical presentation of law of demand)

35. Assumptions Every law will have limitation or exceptions.This law operates when the commodity’s price changes and all other prices and conditions do not change. The main assumptions are Habits, tastes and fashions remain constant Money, income of the consumer does not change. Prices of other goods remain constant The commodity in question has no substitute The commodity is a normal good and has no prestige or status value. People do not expect changes in the prices.

36. Law of Supply and Demand The concept of supply is a cornerstone is the economic pillar of the law of supply and demand. Consider how consumers want to buy products for as low as possible, while manufacturers/retailers want to sell products for as high as possible. The point at which supply and demand meet is what sets the market price. The relationship between supply and demand is constantly evolving, as market demands, raw material constraints, and consumer preferences consistently shift both curves. All else being equal if the supply of a product outweighs the demand, the price of the good will fall. Alternatively, if the demand for a product outweighs the supply, the price will rise. These (and other) outcomes can be graphically depicted using both the supply and demand curves. As the supply curve is upward-sloping to the right and the demand curve is downward-sloping to the right, the two curves often intersect (at the market price for a given level of supply/demand). Movements along or shifts in the supply curve will have a residual impact on the intersecting point with demand.

37. The law of supply and demand The law of supply and demand is a fundamental principle of the free market economy. In this type of economy, consumers purchase goods and services at a price that is acceptable to both the buyer and seller without interference from the government. The law of supply and demand indicates that when there is a high demand for a product, there will also be a high level of need for its supply. High demand for a product with low supply is likely to increase the price of the product. Two things determine a product’s price: the available supply of that product and the overall demand for it. For example, if demand for tennis balls is suddenly high, the supply may tighten, so the price increases. But when tennis players turn to pickleball, the demand for tennis balls drops along with the price.

38. As with anything involving economics, the theory of supply and demand is slightly more complicated than identifying the point at which the two meet on a graph. Four basic guidelines define how prices are established: If supply increases while demand remains static, the price goes down. If supply decreases while demand stays the same, the price goes up. If the supply stays the same while demand rises, the price goes up. If the supply stays the same while demand drops, the price goes down.

39. Keep in mind that the market does not exist in a vacuum. There’s constant movement in supply, demand and price. High prices for everyday commodities result in a drop in demand, because consumers drive less, buy generic corn flakes, for instance, and grill hot dogs instead of rib eye steaks. Incrementally, this decrease in demand leads to lower prices, and the cycle begins again. When product demand and supply are balanced the market reaches equilibrium, also known as the market-clearing price.

40. What affects supply and demand? Consumer trends. Consumer demand for a product drives our economy forward. From demand for the newest computers to the most effective pharmaceuticals, consumers have a never-ending need for more. However, trends in exactly which products are most widely desired shifts from moment to moment. Initial consumer demand is most likely to occur when the product is cheap and readily available. Environmental factors. The production of many goods depends on environmental factors. For example, weather conditions are likely to affect the availability of fruits and vegetables at your local grocery. When environmental factors limit the availability of a product and demand remains the same, suppliers increase the price of the product. Price of the product. As consumer demand increases, product supply is likely to decrease. If suppliers manage to keep up with the demand for a product, they are likely to increase prices. Sellers keep a close eye on taxes and government regulations, as these are two factors that influence the net cost to supply the product. Economic cycles drive other aspects, such as the supply chain and the availability of substitute goods. Essentially, as the price of the product increases, the demand for the product will decrease, as consumers will find viable alternatives to expensive “brand name” products.

41. The law of supply and demand is the theory that prices are determined by the relationship between supply and demand. If the supply of a good or service outstrips the demand for it, prices will fall. If demand exceeds supply, prices will rise.

42. The law of supply and demand is based on two other economic laws: the law of supply and the law of demand. The law of supply says that when prices rise, companies see more profit potential and increase the supply of goods and services. The law of demand states that as prices rise, customers buy less.

43. The law of supply and demand describes how the relationship between supply and demand affects prices. If a supplier wants more money than the customer is willing to pay, items will most likely stay on the shelf. If the price is set too low, customers will be eager to buy the items, but each item will be less profitable. The law of supply and demand is based on the interaction between two separate economic laws: the law of supply and the law of demand.

44. The law of supply and demand essentially states that if a product or service is in short supply, while its demand and other influencing factors remain the same, then its price would go up. Similarly, if the supply increases under similar demand conditions, the prices would begin to fall. It is said that this rise or fall happens to arrive at a point of equilibrium.

45. This equilibrium price is said to be the price at which the sellers can sell all their goods and buyers can buy all that they need. In an ideal world this may have worked well. Sadly, the real world is not an ideal world!

46. Why Is the Law of Supply and Demand Important? Business success in any competitive market depends on accurately assessing supply and demand. Every company that launches a new product needs to determine how much of the product to make and how much to charge. A business that manufactures too much of a product or sets prices higher than customers will pay can easily find itself left with products that don't sell and become dead stock.

47. On the other hand, understocking or setting prices too low reduces profits and can drive away customers who can't wait for backorders to be fulfilled. Demand forecasting can help businesses determine the optimal supply level and find the equilibrium price — the price at which the supply just meets customer demand.

48. 4 Basic Laws of Supply and Demand The law of supply and demand predicts four ways that changes in either demand or supply will drive changes in pricing: 1. Prices fall when supply increases and demand remains constant. If supply increases without a change in demand, a surplus usually occurs. This can happen for many reasons, including surges in productivity. To move excess stock, especially if there's a pending expiration date, suppliers tend to lower prices to try to boost demand. 2. Prices fall when demand decreases and supply remains constant. A surplus can also occur when customers want less of a good or service, even without a change in supply. The effect is the same: lower prices.

49. 3. Prices rise when supply decreases and demand remains constant. If supply drops, shortages occur. In that situation, customers are often willing to pay higher prices to get the goods and services they want. Supply constraints can occur for many reasons, including supply chain problems. If the problem is temporary, prices tend to return to their baseline once supply is restored. 4. Prices rise when demand increases and supply remains constant. A shortage can occur if the demand for a product increases but the supply doesn't — or if demand increases faster than production can ramp up. When supply eventually catches up with demand, prices tend to stabilize.

50. Supply Demand Inventory Level Price Change Increases Remains constant Surplus Lower Remains constant Decreases Surplus Lower Decreases Remains constant Shortage Higher Remains constant Increases Shortage Higher

51. The supply and demand curve was developed by Alfred Marshal in 1890 . He also introduced the concept of price elasticity of demand. He observed that in real life the supply demand relationship is not always true.

52. Moreover, there are some goods whose prices are inelastic hence they may remain unaffected by the law of supply and demand. These include goods like medications and food which are crucial to the consumers.

53. Demand Curve A demand curve is a graph that tracks the relationship between price (vertical axis) and demand (horizontal axis). The downward slope indicates that when prices rise, demand tends to fall. The demand curve is a graphical depiction of the association between the price of a commodity or the service and the number demanded for a given time frame. In a typical depiction, the cost will appear on the left vertical axis. The number (quantity) demanded on the horizontal axis is known as a demand curve.

54. The extent to which price changes affect demand varies from product to product. For any product, the steepness of the curve is a measure of its demand elasticity — the extent to which demand is affected by changes in the price. A less steep curve indicates that a small change in price causes a large change in demand.

55. Supply Curve A supply curve shows the relationship between price (vertical axis) and supply (horizontal axis). It indicates how much output suppliers are willing to produce at different prices. When a supplier sees more profit potential from higher prices, it often will allocate more of its resources toward those more profitable items — usually at the expense of lower-priced items.

56. At the same time, newcomers may enter the market, further increasing the available supply — because with the promise of higher revenue, more companies may be prepared to invest the startup costs required to enter that market.

57. What changes the demand? There are five components of demand, and any or all of them cause disruptions in the equilibrium: Income . As consumers' income increases, they are able to afford more goods and services. For example, in a period of economic boom (as opposed to an economic recession or depression), consumers are much more likely to buy new cars, bedding, to eat out, and buy the latest gadget. Population . A growing population leads to greater demand. More people means greater need for food, transportation and medicine. In areas where the population is declining, demand for certain products also declines. This is true for several parts of the Netherlands that project a population decline of 16% by 2040, along with fewer jobs, less demand for rented housing, fewer construction projects, higher prices for transport and other decreases in demand. Trends and preferences . Consumer tastes, trends and technology all change, so demand fluctuates accordingly. When the iPhone first came out, consumer demand skyrocketed, decreasing product availability and increasing pricing for subsequent models. Competitor pricing . If one company raises its prices, then the demand for competing products increases. If a company can find a way to make a comparable product for less money and is also willing to pass the low pricing on to the consumer, other companies are forced to lower their prices or face a lower demand for their product.

58. References https://www.investopedia.com/terms/s/supply.asp https://byjus.com/commerce/demand/ https://corporatefinanceinstitute.com/resources/economics/law-of-supply-economics/ https://sites.google.com/site/economicsbasics/law-of-demand https://money.com/what-is-the-law-of-supply-and-demand/