Market Supply and Demand

MARKET SUPPLY AND
DEMAND

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
INTRODUTION..............................................................................................................................1
REPORT..........................................................................................................................................1
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................11

INTRODUTION
In economics demand and supply is relationship between quantity of the commodity which
producers are willing to sell over various prices and quantity which consumers are willing to
buy. It is main model of the price determination which is used in the economic theory. Market
supply provides quantity purchased by market participants, sum of individual demands for every
price. Market supply is horizontal sum all individual supply curves. The current report will
demonstrate application of the market supply demand model for evaluating the situation of
falling petrol and diesel prices at UK petrol stations during lockdown. It will also discuss the
factors that affect the shifts in the demand and supply curve in short and long run and long run
elasticities of the substitutes.
REPORT
Petrol and diesel prices fell at UK petrol stations during the Covid-19 lockdown. However,
this is a temporary phenomenon with prices expected to continue to rise in the future.
Demand is referred as the amount of the goods and services which consumers are able and
willing to purchase at every price. Demand is based over wants and needs of consumers. What
buyers are willing to pay for particular unit of goods or service is price. Number of units
purchases is quantity demanded. Rise in prices of the goods and services will always decrease
quantity demanded of the goods or services. Fall in the prices would increase quantity demanded.
For instance, if prices for fuel rise, people look for different ways for reducing its consumption
through combination of several errands, mass transit, commuting through carpool or avoid going
at long distances (Hoskovec and et.al., 2018). It is known as inverse relationship between the
prices and quantity demanded as law of demand.
Supply in economics is referred as amount of the goods or services producers are able to
supply at every price. It is what producer receive for sale of single unit of the goods or services.
Rise in prices will lead to increase in the quantity supplied of goods or services and fall in prices
will result in decrease in the quantity supplied. When prices of fuel rise it encourages the profit
seeking firms in taking several actions for expanding the exploration of the oil reserves,
increasing investments (Fell and Kaffine, 2018). The positive relationship between the quantity
supplied and price leads to the high quantity supplied as law of supply.
Falling petrol and diesel prices
1

Key factor influencing the fuel prices is wholesale fuel market. The oil prices slumped
after the price war in March broke out between the Russia and Saudi Arabia.
The global oil demand is destroyed as corona virus has forced the people to remain indoors
around the world and avoiding all the unnecessary travel. Around two – thirds of the population
is in lockdown and indoor means no driving or doing activities that require use of the fuel and its
derivatives. The most immediate data from the Energy information has reported they have
consumed least gasoline in last 30 years due to the halt.
Equilibrium
It is defined to price quantity pair where quantity demanded and quantity supplied are
equal represented by intersection of supply and demand curves. Equilibrium exists when sellers
are able to sell the goods and services equivalent to amount which buyers are able to pay.
2