Market interaction : how supply aftects prices of goods

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Image made using canva

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Introduction

Good day everyone and how are we all doing today, it's a very beautiful day and i must say I am lucky to have this platform where I can share my knowledge with you all on various topics.

As an economics I would always like to educate individuals about economical situations which I feel are relevant for thier day to day activities.

Why is this topic essential

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To survive in the business environment as a seller or producer of any commodity be it physical or virtual goods we must understand how the Supply of our goods can affect the price of goods in the market.

Know the various ways in which supply can affect prices it brings us a step further to understanding how we can use this to our advantage in order to make profit.

As we are all aware the essence of any business is making profit an in order to do so we as producers or sellers must understand how we are to manipulate supply in order to give us a favourable price.

How supply affects price.

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They are three main ways in which the supply of goods can affect the price of goods and services in the market, the three ways in which supply affectthe price of goods are as follows optimum, excessive and shortage of supply.

When goods are supplied in either of these methods it affects the prices or goods in the market.

To better explain let's assume that's

1. All supplier supply one particular good x
2. They is perfect communication between suppliers
3. The goods being supplied have no close substitute

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Optimum supply

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Optimum supply is a situation where by the total number of goods supplied is the same as the total number of goods demanded.

From the image above we can see that 15 units of goods where supplied and 15 units of goods where demanded hence they is is no waste and no avenue for either the supplier nor buyer to exploit the other, a fair price would be agreed as none.

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Excess Supply

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This is a situation whereby due to some factors such as change in consumer patterns, technology, migration and others supply now becomes more then demand.

From the illustrations above we see that suppliers have supplied 20 units of product x mean while only 10 units was demanded for.

Now in this situation buyers have the upper hand as they have a Variety of produce to choose from the price produce x therefore falls as they is excess in the market.

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Shortage of supply

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This is a situation which occurs wherby the number of goods supplied is not enough to match the number of goods demanded.

This is a situation known as scarcity and in this situation the prices of goods and services are hyper inflated due to shortage.

Due to the limited number of produce x which are available for purchase buyers tend to Increase the price which they would normally have paid for the goods so as to enable them to purchase this goods .

Observations

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In all the above types of supply of goods only one really favors the suppliers and that is shortage in supply.

What then normally happens is that suppliers of a particular goods take for example crude oil tend to collude in order to limit the supply of Thier produce so as to create what is known as an artificial scarcity which drives prices or goods and services up.

Artificial scarcity this is a very deadly tool in the hands of supplier and often the government of countries tend to make laws which prevents suppliers from colluding to work together.

A single supplier can not create an artificial scarcity unless it is monoply hence the need for collusion.

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Summary

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The best way to fight against suppliers manipulation is through the creation of substitute produce which consumers can switch to at any given point during scarcity.

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