Supply And Demand Essay

1688 words - 7 pages

Using demand and supply analysis determine the impact of another event of the scale of that which occurred in the USA on September 11th on the market for hot peppers and crude oil from Trinidad and Tobago.Demand Definition: The entire relationship between the quantity of a commodity that buyers wish to purchase per period of time and the price of that commodity, other things being equal .The quantity demanded of any commodity n (Qdn) is given by the following functional notation.Qdn = D [ Pn, P1?Pn-1, Adv, Y, E, W, λ, expn ] Where D a taste parameter that shapes the entire demand curve, Pn the price of the commodity n, P1?Pn-1 the price of all other commodities on the market Adv advertising Y the income of the household in question E a host of sociological factors, W wealth of the consumer, λ expectations, expn exogenous random elements, e.g. war, famine, etc.Supply Definition: The whole relationship between the quantity supplied of some commodity and its own price.In economics, as with everything else, each event (action) comes with some form of reaction.The concept of demand and supply is the foremost economic concept. It governs the market mechanism and ultimately plays part in the economy of each country. It is a driving force of productive economic activity.The events of September 11th had a destabilizing effect on the United States of America?s economy, and to some extent the whole world?s economy. In the U.S.A, the economic climate experienced a severe downturn: the stock market fell, Foreign Direct Investment decreased and faith in airline travel decreased. The U.S economy lost a great deal of attractiveness from speculative investors. This collective downturn in the economy is reflected to a large extent through the market mechanism (demand and supply).An event such as September 11th effects on Hot Pepper Market: Hot peppers are an agricultural commodity grown in Trinidad and Tobago. The environment of the supply for hot peppers, as with most agricultural goods is very inelastic. This means that there is a great susceptibility for supply rigidity. If demand increases, there is not much more producers can do in the short run to meet large demand increases.An event with the scale of September 11th would have a negative effect on the market for hot peppers from Trinidad and Tobago, shown in Diagram 1.Diagram 1 Effects of an event like September 11th on Market for Hot Peppers Events of September 11th left many people out of jobs (typically in the airline industry). The fall in income leads to a fall in demand shown by a downward shift in the demand curve from (D1-D2). If income falls, people will turn their consumptions to necessities rather than other less necessary goods. From the diagram price of hot peppers will fall to P2. If price remained at P1, and the quantity remained at Q2, there would be excess supply on the market a surplus. The market would not be in equilibrium. The market stabilized when the quantity is dropped...

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