Essay will be based on company called TTP which is specialized in selling carpets and providing services such as washing, dry cleaning, restoration etc. to their clients.
Market demand and supply. Demand and supply may be described as a fundamental in economics and act as a basic for the market economy in business. Demand shows how much of product people are willing to buy at specific price during certain period of time. There is connection between consumption and price. When price goes up demand goes down and this relationship is called law of demand. Law of demand is caused by income effect and substitution effect. The first one is when people cannot afford to buy products because of the price rise. The second one happens when rising the price of the good force them to choose substitute goods. (Sloman2007)
In order to TTP company demand is represented by Sales which in year 2009 were on level of 28%. Due to increase in fuel prices and carpet weaver’s salary in recession period prices had to been increased by 30%. This will affect in demand decrease. On the other hand company expanded their services through offering collection and delivery services to their customers and this will affect in increase of demand. Graphs bellow will illustrate how changes will impact on demand.
A) Shifts in demand
Graph 3 presents shift in demand caused by introducing new services by company to their clients. Due to expanding new offers demand for goods supplied by company increases. Shift in demand on graph 4 is caused by change in product prices. Due to price increase of 30% demand for goods decreases.
TTP Company provides different facilities to their customers including wash, dry, renovation etc. Provision from these services constitutes most of the overall revenue of the company in 2009 (72%). This stands for supply. According to(Ayers & Robert 2004) supply increases when price increases however it will decrease when price will fall (Law of supply). The reason for that is clear. Producers aiming to make profit so if the good is sold in a high price profit made will be higher and vice versa.
This part will present shifts in supply caused by changes in TTP Company. Organization is providing their services to other companies which are not specialized in those areas. Because of these services supply of goods in company will go up. However company is planning to expand their online services which will cost them a lot of money in that case their supply of goods will go down as they will not be able to provide so many services for some period of time due to their investment. Above changes will be illustrated on graphs followed by short explanation on how they impact on supply.
A) Shift in supply (supply goes up)
Graph A presents shift in supply. Due to expanding new services in company supply of goods increased.
When Price (P) drops and quantity (Q) goes up then supply(S) of goods increase.
B) Shift in supply(supply goes down)
When Price (P) goes up and quantity demanded goes up Supply of goods decrease.
Graph B presents shift in supply. Due to new investments company will be limited for some time in providing some services and because of that supply of goods will decrees.
Determination of equilibrium price and quantity.
According to Akerlof