Economics for Business: Demand and Supply Analysis and Cheese Price

This report delves into the core concepts of demand and supply within the context of business economics. It begins with an introduction to demand and supply, explaining their significance in the market and the relationship between buyers and sellers. The main body presents a detailed analysis of demand and supply, including the laws of demand and supply, and the concept of market equilibrium and disequilibrium. The report then explores the supply and demand curve theory, supply and demand schedules, and factors that shift these curves, such as changes in production costs, technology, and government policies. Furthermore, the report applies these theories to the specific case of British Cheddar Cheese, analyzing how demand and supply dynamics influence its price in the UK market. In conclusion, the report summarizes the key findings and reinforces the importance of understanding demand and supply for effective business decision-making.

Economics for Business

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Presenting demand and supply analysis......................................................................................1
Presenting Supply and demand curve theory..............................................................................5
Presenting the theoretical factors that shift supply and demand curves......................................7
Presenting how demand and supply applied to the price of British Cheddar Cheese.................9
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Demand and supply have their own importance in the economics of a business and it
refers to the quantity of the products as well as services which is actually desired by the buyers.
On the other side supply represent how much market is actually offer. The report main aim is to
provide deep knowledge related to supply and demand management system. Report describe the
meaning as well as importance of demand and supply curve and explain the theoretical factors
that shift the supply and demand curves. The theory further applied to the price of British
Cheddar Cheese in UK which is a hard, off white natural cheese. It is world famous type of
cheese in UK.
MAIN BODY
Presenting demand and supply analysis
Supply and demand are the most fundamental concepts of economics and it is also
consider the backbone of a market economy. In this, demand refers to how much quantity of a
products and services are desired by the buyers (Li and et.al., 2018). Moreover, the demand is an
amount of a product which people are willing to buy for certain price and then the relationship
between price and quantity is demanded and this is known as demand relationship.
Supply refers to how much the market can offer in order to fulfil the demand of their
customers. Even the correlation between price and how much goods or services are supplied to a
market that is actually known as supply relationship. The relationship between the demand and
supply be the forces which are behind the allocation of resources. There are so many theories,
demand and supply theory which are as mentioned below:
Law of Demand: This states that if the other factors that affect the demand and supply
remains equal then the prices of goods are higher and the people demand for the good become
lesser. On the other side, as the prices are higher then the demand of their products become lower
(Zhou and et.al., 2018). As the amount of goods are higher then it directly affect the consumption
power of the buyers. As a result, customers or people will naturally avoid to buy a products and
it will further force them to forgo the consumption of goods.
1

Interpretation: In the given fig, A,B,C are three points of demand curve and each point
of the curve reflect the direct correlation with a quantity as well as price, i.e. Q and P. the graph
line shows that as the price of the goods become higher then it will directly lower down the
consumption of the buyer and as a result it will directly affect the economy of the system.
Law of supply: It is also similar to the law of demand but the supply relationship shows
the upward slope which means that if the price if the products are higher then the supply of the
products are also higher (Mokyr, 2018). In addition to this, if the producer supply more at higher
price due to selling a higher quantity and it will help to raise the revenue and as a result, the
economy of the country affected in positive way.
2
Illustration 1: Law of demand
(Source: Law of demand, 2018)

Interpretation: In the given fig. A,B and C are the points on supply curve. Each point of
the curve reflect direct correlation between Q and P. as the prices of the products increases, it
directly affect the economy of the country and as a result, the buying power of the people also
raises. This shows the supply relationship.
Equilibrium: It is that point when supply and demand are equal and at that time
economy is said to be at equilibrium. At this point of stage, portion of goods are most efficient
because of the amount of goods which are supply is exactly the same as the amount of goods
which are demanded (Ball and Pratt, 2018). For the particular price, suppliers are selling in all
goods that they are produced and consumers are getting all the goods which are demanded by the
customers.
3
Illustration 2: Law of supply
(Source:Law of supply, 2018)

Interpretation: From the given fig, the curve at which the intersection of the demand
and supply indicates that there is no allocative inefficiency. When the demand of price is equal to
supply of products which are offered to the customers then this state is known as Equilibrium.
Disequilibrium: This occurs when the price as well as quantity is not equal and there are
two stages which are mentioned below:
 Excess supply:
4
Illustration 3: Equilibrium
(Source: Equilibrium, 2018)
Illustration 4: Excess supply
(Source: Excess supply, 2018)

if the price is set too high, then the supply is created for the economy then at that time,
there will be proper inefficiency. In the above graph, Q is the quantity that customers wants at
Q1 and it is less than Q2. It is so because too much goods are produced and too little are
consumed, therefore the suppliers are also trying to produce more goods in order to raise the
profit margin but on the other side, the products are not utilize by the customers therefore, there
is no chances to enhances the profit margin.
 Excess Demand:
It is created when the prices are set below the equilibrium prices and then the prices are
too low and on the other side, the demand of the customers are raises but suppliers are not
produces the goods as per the demand (Friedman, 2017). In the above graph, it has been analysed
that there are few goods which are produced in order to satisfy the needs of their customers and
then the demand will push the price up and this making the suppliers which they want to bring
ity up and be close to its equilibrium.
Presenting Supply and demand curve theory
In economics, the supply and demand is a simplest model which is used to determine the
price of the market. This directly affect the economy of the country and it also vary form market
to market or to country to country.
5
Illustration 5: Excess Demand
(Source: Excess Demand, 2018)

In this graphical representation, the price of the product is determine through a balance
between the production of a single unit i.e. supply. The desire of such with the purchasing power
at each price will shows that as the demand of the customers will increases and as a result, there
is an increases in price and quantity which are sold of the product.
Supply schedule: This shows the relationship between the prices of the goods and the
quantity which is supplied (Schneider and Buehn, 2018). This supply is actually determine
through a marginal cost and if the firm or an organization produces an additional output then the
cost of producing an extra unit of output which is less then the price they will receive. This
supply determinants are shows as the production cost, firm expectation about the future prices
and the number of suppliers which affect the company's overall production level. There is a
difference between supply curve of an individual as well as market supply curve. This market
curve is obtained by summing the quantities that is actually supplied at single price unit. There
are so many factors that changes the supply of a goods and this is as follows:
 The prices of factors of production
 cost of goods which are produced.
 Expected future prices
 suppliers
 new and advance techniques
6
Illust
ration 6: Supply and demand curve
(Source: Supply and demand curve, 2018)

 state of nature
Demand schedule: The demand curve represents the amount of some goods that a buyer
wants to purchase at various prices such as income, taste and preferences, price of the goods and
price of the substitute goods (Costa-Campi, Jamasb and Trujillo-Baute, 2018). The demand
curve is actually shows in downward sloping which means that the prices are decreases and the
consumer will also buy more quantity of goods. As supply curve reflect marginal curve, in the
same way, demand curve is also determine by marginal utility curve. Moreover, if consumer will
be willing to pay in order to buy a product at a given price, if the marginal utility of alternative
consumption choices and thus it is also affected by many factors which are as shown below:
 Income
 taste and preference
 cost of the goods and services
 customers expectation for their future price
 number of consumers etc.
in a situation of the market when the price is such that the quantity is demanded by the
customers is correctly balance by the quantity which a firms wants to supply. At that time, the
market is clear and when the customer increases the quantity which is demanded at a given price
at that time this is refereed as an increases in demand. On the other side, if the demand decreases
the curve will shift to left and the quantity supplied at each price is same as before. As a result
comes, the quantity as well as price are different as a result, there is a change in demand of the
people and there is a equilibrium in the state where the price and quantity is in equal ratio.
Presenting the theoretical factors that shift supply and demand curves
There are so many factors that affect the demand as well as supply curves and this are
mentioned below:
 Changes in Cost of production: this factor directly affect the shift of supply and
demand of the curve such that if the lower cost of the production which means that
business can supply more amount at each price (Schumpeter, 2017). If the cost of
production increases then the price of raw material or a firm that pay higher wages to
their workers then a business cannot supply as much products and at that time this will
cause an inward shift of the supply curve. In addition to this, if there is a fall in exchange
7

rate that will cause an increases an increase in the price of imported components and as a
result there will be decrease in supply.
 Changes in Technologies: This is also affected the demand as well as supply in negative
way. In this modern world, production of technologies can also changes quickly and in
industries where change is rapid and as a result comes in the form of supply and lower
the prices for the customers so that they will enjoy (Ruttan and Thirtle, 2014). On the
other side, if these new techniques are applied in the business then the supply cost of the
products are also raise and as a result, this will affect the demand of a goods and it shift
the curve of demand and supply.
 Government taxes and subsidies or regulations: this will also affect the overall cost
and working such that as the indirect taxes cause an increase in production cost then the
curve is an inward shift of supply. On the other side, subsidies are also bring about a fall
in supply cost and as a result it is an outward shift of supply. Therefore, it shows that the
government taxes and subsidies are also affected the demand and supply curve such that
the rules and regulations are also increases the production cost then there is an inward
shift of supply (Cardenas, Franco and Dyner, 2016). Thus the supply of the products are
also affected through this because as the tax rate increases then the demand of the people
decreases and as a result the supply of those goods are not up to the mark and this affect
the overall working performance.
 Taste and preference: This is another most affecting factor that affect the demand of the
supply curve. In this, as the taste and preference of the customers varies from one place to
another then it also affect the supply of goods. Therefore, taste and preferences also
matter the most and it also shift the curve from opposite direction. Hence if the taste and
preference will also affected the market equilibrium would also changes.
 Price of complementary goods: in a market if the products are supplied with same price
and sudden there is a substitution in a product and this is also supplied using the same
resource. For example, if cheese are produce in the market of UK and then there is a new
product add in the market and at that time, people will shift from other new cheese
product that is introduced (Azevedo and Leshno, 2016). As a result, it will affect the
change in demanding as well as supply so that the curve is also shift from other direction.
8

Presenting how demand and supply applied to the price of British Cheddar Cheese
As the demand and supply curve directly affect the economy of the system and in the
same way, it also affect the price of British Cheddar Cheese. A downward trend in the wholesale
market of UK is also hold up against the backdrop of weak demand and therefore, the cream and
butter market were impacted the most and as a result comes, the prices are also dropping steady.
In addition to this, skim milk powder and cheddar prices dropped slightly because there is a
slight change in this curve.
The fig also shows that, the price of British Cheddar Cheese is also slows down from
last many years and this is because the low prices were short lived and as the demand of fresh
cream is not as the cheese. Therefore demand of British Cheddar Cheese also affected through
demand and supply. Hence, this shows that demand and supply affect the price up and down as
per the market requirement (Becker, 2017).
For British Cheddar Cheese, this is come under the pressure from the lack of demand.
The relatively high cream prices also make it unattractive and therefore, food manufacturers start
reformulating in order to avoid the high cost of butter as a component. Therefore, the sales of the
products are also agreed to be done at reduced prices. For Cheddar Cheese the market will
remained relatively a firm and there has been a downward pressure in the lower end of the
market and the prices goes up and as a result, the cheese are putting pressure on the prices for the
products that is going into the market (Howlett, 2015). Therefore, it shows that demand and
supply also affected the cost of the British Cheddar Cheese so that if the government increases
the rates of taxes then it will also affect the prices of the product and if the price is higher then
9
Illustration 7: Prices of the products
(Source: AHDB Dairy)

the demand of the goods become lower. Hence, the demand as well as supply is also affecting
the economy of the country.
CONCLUSION
By summing up above report is has been concluded that demand as well as supply affect
the market as well as economy of the country. Demand of the products is also influence by the
government taxes and rates and thus it will also affect the supply and hence the buying power of
the customers affected and as a result the growth of the economy decline. Report also concluded
some factors that are also affected demand and supply. Hence, this factors also affect the
economy of the country. In addition to this, report also concluded that the price of British
Cheddar Cheese is also affected by the demand and supply curve.
10