While it is obvious that the price of an item influences the demand curve, customer likes and preferences can also influence demand. The supply and demand for goods and services is a key notion in economics, influencing all elements of the market economy. The purpose of this article is to analyze a case and provide an explanation for the price fluctuations of a commodity. Using various terms for demand and supply, the paper will demonstrate how a shift in demand occurs when other economic factors other than price are present. Parkin, (2014), asserts that the demand of a product is affected by the changes in the prices of the goods and the presence of the supplementary products. In most cases, the customer can use the substitute product or services in place of the other good, and the price of this product can significantly influence the other product. Other products tend to complement each other as such they are often used together because the consumption of one tends to control the consumption of the other. For example, the consumption of cereals for breakfast also affects the consumption of milk. If the price of cereals rises, the quantity demanded of cereals reduces because of the reduction in demand. Because of this, the need for the complementary products such as milk reduces with it with a converse effect on the price having the reverse effect (Besanko & Braeutigam, 2011).
The relationship that exists between demand and supply motivate the forces that influence the market economy (Arnold, 2008). The demand of a product refers to the number of the products desired by the customers per any given time and at a certain price. The inherent relationship existing between the demand for the product and their price is the demand relationship. Further, the supply of a product refers to the amount that the market can offer. The number of goods supplied by the market is dependent on the price of goods and the demand for the product at any period (McEachern, 2008).
The relationship between the price of the goods and the amount supplied in the market is known as the supply relationship as such price affects both the supply and demand of the goods. The law of demand states that unless nothing changes, there exists a negative correlation between the price of the goods and the quantity demanded by the customers (McEachern, 2008). Two factors affect the law of demand, which is the substitution effect and the income effect. The substitution effect highlights the change in the price of goods upon the relative demand made by the consumers. On the other hand, the income effect highlights the impact of the fall in the prices of products on the purchasing power of the consumer. The effect is the motivation of the consumers to purchase more of their goods.
When the supply and demand of the products are equal, which occurs when supply function and the demand function intersect, the market economy is said to be at equilibrium (Arnold, 2008). At this instance, the number of goods allocated in the market is always at its most efficient state as the goods supplied is equal to those in demand. These conditions makes everyone starting from the consumers and the firms to remain satisfied with the economic conditions. At the equilibrium price, the suppliers supply all the goods that is in production while the consumers get all the goods they demand (Arnold, 2008). If in any case, the cost of the goods and services are set too high in the market, the market experiences excess supply within the market thus reaching a situation of allocative inefficiency. Because of this, the distribution of goods between the existing alternatives does not fit the consumers’ needs either because of the costs or the benefits.
On the other hand, when there is excess demand when seller set the price below the equilibrium price, many consumers end up demanding the product more than the producers can make them (McEachern, 2008). However, there are other instances that demand can change because of other factors other than price. The shift in demand can occur when the number of goods demanded or supplied changes in a market economy even without the changes in the price. Such a scenario happens only when the product in question is the only type available for consumption. Therefore, in such a case, the consumers are always willing to purchase the products at the designated price while all the factors remain constant.
In the case example mentioned, any changes that lower the quantity of the ice cream that buyers wish to purchase at any given time ends up affecting the demand curve. One of the most probable reasons that could have led to the rise of the sales of the ice cream could have been the rise of the related goods. Such associated products, for example, the presence of yogurt on the campus, which in most cases can substitute the use of ice cream, when the prices of the yogurt rose, it led to a subsequent rise in demand for the ice cream in that day. A change in price for the related product can explain the adverse effect on the demand for the ice cream during that specific day. The presence of hot fudge in the market, which is a complimentary product for ice cream, can also affect the price of ice cream. Because of this, when the price of hot fudge went up, this meant that the students demanded less ice cream. Another reason that can affect the demand for the ice cream is the income of the student. If the price remained constant, then the amount of money that the students had per day affected the demand curve. Moreover, an external factor such as the taste of the ice cream, the weather could make the demand curve of the ice cream to shift.
For example, in a hot day more students can demand the ice cream, and in cold days, fewer students can buy the ice cream and opt for another product like the hot fudge. Moreover, if the school allowed another student to sell ice cream on the school property, this could affect the price of ice cream. To ensure that the demand for the ice cream remains the same, then the first seller can opt to change the prices of his ice cream. The other student can come with better technology to make the ice cream meaning that the price of his ice cream can be lower than the first seller. In such a case, then the first seller should come up with mitigating factors that can help in the change in price.
Conclusion
Evidently, many factors can affect the fluctuation in demand for the ice cream in a market economy. The elements range from income, the weather, and the presence of complementary products. Therefore, the seller should come up with means of reducing the selling price of the ice cream to ensure there is no negative shift in the demand curve when the school allows another student to sell the ice cream.
References
Arnold, R. (2008). Economics (9th ed.). Boston: Cengage Learning.
Besanko, D., & Braeutigam, R. (2011). Microeconomics (4th ed.). Hoboken: John and Wiley Sons.
McEachern, W. (2008). Microeconomics (8th ed.). Boston: Cengage Learning.
Parkin, M. (2014). Economics. Boston: Pearson.
