Mechanism of Demand and Supply
Analysis of demand and supply of certain resources of Australian Market:
Demand and supply are two important tools of micro economic analysis. Demand refers to how much quantity of a product is desired and purchased by a buyer at a given price-level, where supply of a product represents how much quantity of a product that a market can offer at a given price-level. Demand and supply of a product depends on different factors. Demand of a product (suppose, X) depends on the price of that product (PX), price of the related commodities, consumers’ income, population or number of consumer, test and preferences of consumers etc., while supply of a product ( suppose, X), depends on the price of that product (PX), production – cost, price of production factors, future expectation about the price level etc. Before discussing about the demand and supply of certain resources in Australia and factors other than price which affect demand and supply, the mechanism of demand and supply in microeconomic analysis should be done.
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According to Marshal, all other factors that determine the demand of a product, remaining constant, if the price of the product increases, then demand will decrease and if the price decreases, demand will increase. That means there is a negative relationship between price and quantity demand. On the other hand, all other factors that determine the supply of a product, remaining constant, if the price of the product increases, then supply will rise and if the price decreases, then supply will fall. Hence, there is a positive relationship between price and supply of that product. If this demand and supply forces of market can work freely, then we can get the equilibrium market demand at equilibrium market price, where demand and supply of the product is equal. Therefore, demand and supply forces determine the market price in a free market economy, in the absence of government intervention (Pindyck and Rubinfeld, 2005). This can be shown in the following diagram of demand and supply (Figure: - 1). If there is excess demand in economy, price level will increase and with the increase in price level, suppliers will increase the supply, which will meet the demand at equilibrium level (Hyman, 1988).
Now, if other factors of demand except its own, price change, then demand curve will shift to upward or downward. For example, if income of an individual increases, then at the same price level demand will increase and demand curve will shift upward and if income decreases, then demand will fall and the demand curve will shift toward down as in figure:- 2. On the other hand, if other factors of supply except its own price, change, then supply curve will shift towards up or down at the same price level (McTaggart, Findlay and Parkin, 2012). For example, if production cost of a product increases, then the supply will decrease and the supply curve will shift towards down and if the production cost decreases, then supply will increase and the supply curve will shift towards up, as shown in figure:- 3(Fernandez and Lagunoff, n.d.).
Now, from the above analysis of demand and supply, the analysis of demand and supply of certain resources in Australia can be done as follows.
In Australia, there exist different resources like agricultural resource, mining resource, human resource etc. Though, demand-supply analysis for these resources in Australia, is more or less same, but there exist slight differences between these analysis. Though the demand- supply analysis for the agricultural sources is same as the above analysis, but in case of mining resources and human resources, the demand supply analysis is different (Abowd and Freeman, 1991). There exist some exogenous factors of the economy which bring different results in demand supply analysis of various resources of the economy (Anon, 2015).
For example, in case of Eastern Australian Gas market, there exists an asymmetry of option in demand-supply analysis. Before, 1990s, the demand in Australian Gas market was not so high because of international market pressure, and not because of its price level. From 1990s, due to the large scale development of export, both the demand and supply of Eastern Australian Gas market have increased throughout the phase of time. Now, if we consider, the case study of Bowen Surat gas fields in Australia, we can see that in next twelve years, the supply of LNG from this gas field was completely unavailable for the domestic market, though there was no common reason for fall in supply of LNG. This situation occurred completely due to an external reason. For this twelve years, all the gases produced in this field, were fully contracted to LNG export. Though there was enough gas in the eastern reserve to meet the domestic supply and there was no shortage in demand zone, there was deficit supply of gases in the market (Musgrove and Stocks, 1985).
Again, if we concentrate on mechanism of demand and supply of human resource of Australia, we can see that the demand for human resource in Australian market is excess than the supply of skilled labour, which results a hike in the wage level of workers. But, inspite of this high wage-level, increased supply cannot meet the demand as there is a lack of skilled labour in Australian market (Human Resource Management Australia, 1988)).
Hence, form the above analysis we can say that the demand and supply of any commodity, not only depends on the price level of the product, but also on some endogenous and exogenous factors.
Abowd, J. and Freeman, R. (1991).Immigration, trade, and the labor market. Chicago: University of Chicago Press.Anon, (2015).
Fernandez, J. and Lagunoff, R. (n.d.).Three Essays on Microeconomic Dynamics.
Human Resource Management Australia. (1988).Asia Pacific Journal of Human Resources, 26(1), pp.113-114.
Hyman, D. (1988).Modern microeconomics. Boston, MA: Irwin.
McTaggart, D., Findlay, C. and Parkin, M. (2012).Microeconomics. Frenchs Forest, N.S.W.: Pearson.
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