Exploring Demand and Supply: Application in Contemporary Business

This essay explores the application of demand and supply principles in real-world business scenarios, analyzing two articles to demonstrate these economic concepts. The first article discusses the high demand for organic products, leading to increased prices and fraudulent activities in the market, while the second examines the housing market, particularly the impact of Airbnb on rental prices and availability. Both articles illustrate how demand and supply dynamics influence market outcomes, with the conclusion emphasizing that these theoretical concepts are highly relevant and applicable in the modern business environment, particularly in understanding price fluctuations and market behaviors. Desklib offers a range of similar solved assignments and study tools to further aid students in their learning.

Running head: DEMAND AND SUPPLY 1
Demand and supply
Student’s name
Institution Affiliation
Date

DEMAND AND SUPPLY 2
The concept of demand and supply is imperative in determining the optimal price and
output for a particular product. In this essay, two articles will be analyzed to demonstrate the
application of demand and supply in real-world identifying how the concept of demand and
supply has been applied. The use of diagrams will be crucial to explaining how economic theory
is evident in the business world.
Literature review
According to classical economists, economic theory employs a model of demand and
supply that gives an elaboration of how the equilibrium of one commodity is realized
(Britannica, 2019). The mechanisms used in deriving equilibrium employ intersection between
demand and supply curves. Economics postulate that price is the primary determinant of both
demand and supply. Equilibrium economics only defines the interaction of the demand and
supply curves and fails to explain how the intersection is attained (Britannica, 2019). The system
dynamicists, on the other hand, are of the view that product availability, as opposed to
production rate, affects both the price and demand of the market. This translates to the inventory
of a commodity as a primary component in setting the price and controlling demand. Thus, both
theories present a hybrid of dynamic impacts of stock that repeats the static argument by
economists regarding demand and supply.
Article 1: Demand for organic still exceeds supply for many goods
In this article, the author expresses concerns regarding demand and supply of organic
product in Washington (Sterk, 2018). Based on the analysis as per this article, it is evident that
demand for organic products exceeds supply and this leads to higher prices that are paid for
organic components and finished goods compared to traditionally grown and processed
commodities. Thus, a majority of livestock and milk producers with the inclusion of processors

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of food rely on imports for the provision of organic raw products and originality is often hard
and fallen into the hands of predators where fraud is reported in some cases.
According to Organic Trade Association(OTA) in the latest survey that was conducted it
indicated that sales from organic food recorded more than $45 billion at the end of 2017 which is
6% rise from the 2016 figures and exceeded the general growth of food sales that is set at 1.1%
(Sterk, 2018).However, the growth rate slowed down from the 9% recorded in 2016 due to the
slump growth in organic dairy and egg section, the O.T.A asserted. It has been reported that
globally, the sales from organic product went above $90 billion (Sterk, 2018). Natural products
have continued to venture in the total food market and currently accounts for more than 5% of
the food sold in some of the retail distributors in the United States of America.
The prices for organic food grade such as wheat, corn, and soya beans have been reported
to be more than three times higher than traditionally-grown crops. As of September, the organic
and non-genetic modified organisms trading avenue and market data company approximated that
regional average price in between July-August for commodities such as food-grade organic corn
retailed at $11 per bu, soya beans at $21 and hard red spring wheat for $15 (Sterk,
2018).However, in contrast, the prices for traditional-grown grains stood at $3 for Omaha corn
per bu, soya beans at $7 per bu and hard red spring wheat at $5 per bu based on the U.S.
agriculture department.
The high prices for organic commodities have promoted unethical, fraudulent activity
that is particularly problematic for imports. According to data provided by O.T.A the organic
imports from the U.S. were estimated to be worth $2.1 billion as of 2017 and was 25% up from
what was recorded in 2016 (Sterk, 2018). However, based on the investigations carried out last
year, it was found that imported products were fraudulently labeled as organic and challenges

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were arising from the organic supply chain. Due to such practices, O.T.A initiated a pilot project
to assist in detecting fraud prevailing in the world organic system. With the natural now
extending its operation in the global market, cheating has become one of the major threats to
such a market, and it is a thorn in the flesh of the organic framework (Sterk, 2018). As of
September, O.T.A reported that it was moving forward its voluntary, industry-invested research
with regards to research and education check-off program. A suggestion regarding how to
improve participation in the voluntary program and how to prioritize some investments would be
considered. The department of agriculture also ended the proposals for the regional organic
check-off program.
Article 2: Supply, Demand, and Equilibrium.
In 2016, it was reported that the vacancy rates for the rentals had dropped to less than
0.7% in places such as Greater Victoria (BC campus, 2018). In comparison to the regional
average that stood at 3%, it is apparent why most media channels and people were referring to
this as a housing crisis (University of Victoria, 2017). The most affected and hit hard by such
low vacancies were the students, and in worst case scenario, international students from
Camoson college were said to have gone back home as they could not find a place they could
stay. The use of a competitive market model will be useful to explain some of the factors
responsible for such a crisis and policies that could be employed to solve such a situation.

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Based on the above diagram, if supply is equivalent to demand, then there will be no vacancy.
However, it is known that a 0% vacancy rate would be a hard phenomenon for the market mainly
for renters.
How equilibrium could have a vacancy rate at 4%
One of the elements responsible for the housing crisis has been identified as Airbnb.
Airbnb has been defined as an online marketplace and hospitality service that enables individuals
to list or rent lodging on a short-term basis for instance rentals for vacation, apartment rentals,
hostels and hotel rooms where the lodging cost is determined and fixed by the owner (BC
campus, 2018). The city councilors have gone further to target such short-term rentals, asserting

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that most landlords have opted to Airbnb their facilities instead rent them out on a long-term
basis. The figure below shows how Airbnb has grown in a place such as Vancouver.
How switching from renting to Airbnb displays the impact of the changes.
Airbnb has been reported to be adamant with regards to short-term rentals that they have
a negligible effect on the housing market, indicating that in a place like Vancouver only 300
hosts have rented out their premises often substantial to make more money compared to long-
term rentals (BC campus, 2018). This accounts just for 0.11% of the gross housing units.
Compared to Victoria, that would translate to having only 25 units being impacted by the short-
term rentals.

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According to Tom Davidoff, a business professor, he asserted that the general public
analyses the fact that Airbnb is famous in expensive neighborhoods and indicated that Airbnb
was responsible for driving rents up in such regions (University of Victoria, 2017). He confirmed
that such communities were costly and the effect imposed by Airbnb after taking a share of the
available stock is negligible.
Another factor responsible for the impact on the market for rental is the inability of many
Canadians particularly the young to purchase homes. The prices for the houses have not only
skyrocketed, but also student loans from their universities burden young Canadians. It has been

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approximated that it takes 15 years to save enough money to make a 20% down payment on a
house compared to 1976 when it did (BC campus, 2018). It is such a reduction in mortgaging for
Canadians that has led to an increase in the amount required to enter the market for housing.
The housing market is characterized by prices that are rigid making it hard and slow to
adjust. Landlords are limited by the Residential Tenancy Act as they cannot raise the prices
immediately following demand in the short-term (University of Victoria, 2017). Landlords are
only allowed to raise prices for their property when negotiating a new contract. Thus, in the
short-term when there is an unprecedented demand, there are many unjustified evictions
conducted by landlords as they aim to charge the new high equilibrium price. Thus, the short-
term costs may remain relatively constant leading to shortages or surplus.
The government of British Columbia unveiled an affordable-housing scheme worth $500
million aimed at helping communities that have suffered as a result of low-cost housing (BC
campus, 2018). Premier Clark made it clear that her government was dedicated to funding more
than 60 new projects to help address the crisis evidenced in the housing market.

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In the first article, it is apparent that there is a demand for organic food products making
the prices to go up. This is in line with the law of demand that whenever demand is high, then
prices increase. However, such a market has drawn in unscrupulous business people who engage
in fraudulent activities of labeling products as organic to reap from the huge profits witnessed in
such a market.
The second article is about the demand and supply of houses in various countries where
Airbnb has been criticized for making prices go up as landlords opt for short-term renting as
opposed to the long-term (University of Victoria, 2017). Airbnb has enabled landlords to quote
the price for renting their facilities, and this has made many landlords chose Airbnb causing a
shortage of leasing options. The result is that Airbnb has made the renting prices go up as there is
a shortage of renting premises on a long-term basis making them the only option. Thus, they take
advantage of the situation and charge exorbitant prices.
Conclusion
It is evident that in both articles, the theory of demand and supply has been applied to
justify its use in the modern business environment. In the first article, organic products are in
demand driving prices up. In the second article, demand for houses in the housing market is high
leading to increased rates. The concept of demand and supply is not just theoretical literature but
also applicable to the modern business environment. Demand is a function of price though other
factors affect demand. In both articles, demand influenced the prices.

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References
BC campus. (2018). Principles of Macroeconomics. Retrieved from BC campus:
https://pressbooks.bccampus.ca/uvicecon103/chapter/case-study-the-housing-market/
Britannica. (2019). Demand and Supply. Retrieved from Economic Growth:
https://www.britannica.com/topic/economic-growth/Demand-and-supply#ref231826
Sterk, R. (2018, February 10). Demand for organic still exceeds supply for many goods.
Retrieved from Food Business News: https://www.foodbusinessnews.net/articles/12613-
demand-for-organic-still-exceeds-supply-for-many-goods
University of Victoria. (2017). Supply, Demand, and Equilibrium. Retrieved from Principles of
Microeconomics: https://pressbooks.bccampus.ca/uvicecon103/chapter/3-6-equilibrium-
and-market-surplus/