Concepts of Economics Demand and Supply

Question: Discuss about the Concepts of Economics for Demand and Supply. Answer: Introduction The most essential concepts of economics that is also considered as the backbone of the market economy, is termed as demand and supply. The total quantity of a commodity as well as service that is desired by the purchaser is termed as demand. On the other hand, the total amount of a product that the producers are willing to offer is termed as supply. The total quantity demanded is the amount that the purchaser is willing to purchase at a certain price. The correlation between demand and supply underlie the forces behind the allotment of resources (Canto, Joines and Laffer 2014). The law of demand states that, other factors equal the higher the price of a good, the less individuals will demand that good. On the other hand, the law of supply states that producers will supply more of a product at a higher price as it will help to increase revenue (Rios, McConnell and Brue 2013). Discussion The essay portrays a demand in China for high quality baby formula and parallel dealers who travel to Australia and purchase large amounts of baby formula and then sell them back to China meet this demand. The manufacturers of baby food formula mostly benefit from trade due to its raised demand. The parallel dealers in Australia make a profit by selling the formula at a superior price back in China. There is a high demand for infant formula as well as other goods, such as vitamin supplements and honey in Australia. However, on the demand side, the Australia-based grocery stores, such as Coles and Woolworths, that ship to China are mostly struggling to keep up with the augmenting demand from the individuals in China (ABC Rural 2016). The strong demand for the organic infant formula from China increased sales in the mainland for food and Beverage Company of Australia. As a result, proceeds from China last year totaled to more than a quarter of worldwide revenue. The baby formula maker in Australia, who is also the supplier of organic infant food, saw increase in revenue from China to more than $62 million. Particularly Chinese individuals who value severe food safety regulations of Australia and consider that overseas products will not be forged fueled global demand for local milk formula. The demand for infant milk food of Australia by Asia also helped the organic food producers to witness a huge increase in sales as well as increase in profits. The supply of organic baby foods had also risen drastically and it has become more reasonable. This is mostly because; customers of organic baby food are not sensitive to changes in price. Sustained efforts by manufacturers of baby food in order to enlarge production of t hese products while affording customers attractive prices, may not lead to drastically augmented purchase levels. The graph shows that increase in demand will increase sales for baby food (Smith and Blake 2013). The factors that affect the demand of the market mostly includes price of the product, the income of the customers, the price of related products and the changing taste and preferences of the individuals. There is an inverse relationship between the price of a good and the amount of that good that are desired by the customers. The income of the individuals also has an impact on the demand of baby foods. There is always a positive relationship between demand for baby foods and the income of the customers. As a result, if the income of the individuals increases, it leads to the increase in baby food demand (Bowen, and Sosa 2014). The graph shows that with the increase in income, the demand for normal good will increase however; the demand for inferior good will decrease with the increase in income. The demand for baby food is also likely to change due to the change in taste and preferences of the individuals. If a healthy study comes out stating that a baby food of a certain brand is not good for health, in that case, the demand for the baby food will decrease. The future expectation of the customers also leads affects demand. In other words, if the customers anticipate that the price of baby food is likely to increase in the future, they are likely to purchase more of baby foods at present. The factors that affect the supply sides of the market mostly include the price of a given product, price of inputs, and state of technology as well as government policy. Price of a given product is considered as one of the imperative determinant of supply. In other words, supply of a commodity and its price is directly related. If the price of a commodity increases, the supply of the commodity also increases in order to increase the profit (Ehrenberg and Smith 2016). On the other hand, if the price of inputs increases the cost of production will also increase that will lead to fall in supply. This will in turn lead to fall in profitability. Similarly, the supply of a particular product will be influenced with the change in the state of technology. The advancement in technology will diminish the cost of production that will in turn lead to increase in marginal profit. Increase in tax also has an impact on supply of a product. Increase in tax reduces supply by lowering marginal profit (Shepherd 2015). Conclusion It can be concluded that the income of the individuals also has an impact on the demand of baby foods. There is always a positive relationship between demand for baby foods and the income of the customers. References ABC Rural. (2016).Bellamy's profits up on back of Asian demand for baby formula. [online] Available at: https://www.abc.net.au/news/2016-02-19/infant-formula-producer-bellamys-reports-big-sales-growth/7183332 [Accessed 12 Dec. 2016]. 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