DEMAND AND SUPPLY

ASSIGNMENT
WILL SONG

DEMAND

Demand in an economic term that describes how much desire one has, to pay for a
particular good or service. The lower a price, the more willing a person or people
is/are to buy that good/service, and thus the demand increases. It also happens the
other way around, where the higher the price, the lower the quantity demanded by
consumers. When a particular point moves up and down the curve in relation to the
price, the movement is called a contraction or an expansion. A contraction is when
the price goes, and the quantity demanded decreases, an expansion is the opposite.

The demand of a certain object

can shift left or right depending
on a variety of factors. This is
different to a change in demand
to a change in price. When the
demand curve shifts, it will cause
a different quantity demanded
for the same price. See graph on
the left, for the same price P1, the
quantity demanded can be
reflected as Q1, Q2 or Q3.
This change can be brought
about though the change of
tastes and preferences, or the
change of disposable income.
With the change of preferences, a soccer ball, for example might have increased
demand during the World Cup period, leading to a higher demand, with no change
in price. A change in disposable income works on a similar principal to a change in
preferences, if people have a lower disposable income, they wont be able to afford
more expensive products, and as a result the demand for a more expensive product
will go down, even though there is no price change.

The supply curve is a representation of how

much a supplier will supply for a good or
service at certain price point. The higher the
cost of producing the product, the lower the
amount supplied. The lower the price, the
higher the amount supplied. This movement
is along the curve, causing expansions and
contractions similar to the demand curve. The
movement of Q1 to Q2 relative to P1 to P2 is
called an expansion. From Q1 to Q3 relative to
P1 to P3 called an contraction in supply.

The supply curve can also shift to the left or right, with no relation to price.
This change can be caused by a variety of factors
including costs of production and adverse
weather conditions. Shifting to the left means less
units are produced for the same price (3000 in the case
of the diagram on the right). Costs of production can
change due to the price of materials and labour, so
the curve can shift either left or right.
Adverse weather can cause productions to slow, especially in
drought, flood and other natural disasters. This can cause the
production of a good (e.g. vegetables and fruits
in a flood) to slow or halter for the time being
making it shift to the left, but can lead to a shift to the right
for other areas such as construction or plumbing services in flood seasons.

PETROL

Petrol is one the resources that is in oversupply right now, also known as a glut. An
oversupply is where a product has too much supply and not enough demand. To try
and compensate for this, the companies are trying to lower the price of petroleum
to raise the demand, but the demand is so inelastic that even with a huge change of
price, there has been not much change in demand. The demand has been
decreasing with the weakening economies of Europe and developing countries.
China's devaluation of its currency suggests its economy may be worse off than
expected. With China being the world's largest oil importer, this is a huge hit to
global demand.1

Oil is measured in barrels, which is 42 US gallons, or 158.9873 litres. The price of a

single barrel of crude oil has fallen to a 12-year low hitting $US27 a barrel - down
from highs of $US116 a barrel in late 2014.2 Caltex has seen very slim margins -
with the average net profit in the order of 2.22 cents per litre. 3

prices have dropped about 15% since 2015, falling below the price of 1 dollar per
litre. The price is determined by international prices (the Singapore benchmark of

1 http://www.investopedia.com/articles/investing/102215/4-reasons-why-price-
crude-oil-dropped.asp

2 http://www.abc.net.au/news/2016-02-02/oil-petrol-prices-explained/7132934

3 http://www.abc.net.au/news/2016-02-02/oil-petrol-prices-explained/7132934

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petrol). This price has
been projected to
continue downwards,
and has no end in
sight. In the wider
economic sector,
government have been
taking quite a large
toll. Russia is one the
worlds largest oil
producing companies.
Russia loses about $2bn in revenues for every dollar fall in the oil price, and the
World Bank has warned that Russia's economy would shrink by at least 0.7% in
2015 if oil prices do not recover. 4 In petrol stations in Sydneys west, the price has
fallen below a dollar a litre, giving benefits to motorists. This drop in price would not
be widely adopted as We're unlikely to see petrol below $1 as an average, as the
wholesale price is still sitting above 105 cents a litre and they would be selling at a
loss,"5 said RACQ's public policy manager Michael Roth.

APARTMENTS

1. Glut an oversupply of apartments, typically in the sense that there are too
many apartments, and not enough demand for them. An oversupply can decrease
the price, to increase the demand, reaching a new equilibrium.

2. Equation for calculating percentage change in apartment approvals.

New number of approved apartmentsOriginial number of approved apartments

Percentage Change= 100
Originial number of approved apartments

Suburb 2013 number 2015 number Percentage change

Footscray 118 1371 +1061.64%
North Melbourne 483 1347 +178.88%
Box Hill 164 1027 +526.21%
Doncaster 84 982 +1069.05%

4 http://www.bbc.com/news/business-29643612

5 http://www.abc.net.au/news/2016-01-20/petrol-prices-drop-below-one-
dollar/7100102

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Carlton 804 945 +17.54%
South Yarra 1578 780 -50.57%
Brunswick East 176 749 +327.57%
St Kilda 197 702 +256.35%
Caufield North 48 674 +1304.17%
Preston 113 653 +477.87%
3. Demographic changes and changes in preferences and tastes may cause larger
changes in areas than others. People may like living, close but not within the city,
and therefore giving rise to more apartments in nearby suburbs. Or from the
suppliers point of view, it is much cheaper to build second class suburb, where land
is significantly cheaper than in the CBD.

4. Only South Yarra had a decrease in the number of apartment approvals, dropping
by a little over 50%, possibly due to an alternative option, of much cheaper housing
in other suburbs such as Footscray. Also possibly due to the fact that there isnt as
much land there to build on, as it had all been used up in previous years.

5. demand to keep up with supply if the apartments are released onto the market
in a steady stream, as opposed to a flood. Means that, the amount of apartments
being built are steady, and is able to maintain the equilibrium. The demand of the
buildings is also very constant, as there isnt any factor which would cause a
substantial boom in demand over a short time. The constant demand and supply
helps maintain equilibrium. Whereas a flood (a sudden large increase) in the
number of housing will cause a large glut, and harder for the market to cope with.

6. Domain chief economist Andrew Wilson, stated that high-rise living was
escalating in inner and Eastern Suburbs because Northern suburban units were too
expensive for first time home buyers and are being bought out by overseas
investors.

7. Although there are too many apartments, the tastes and preferences are different
from person to person. Catherine Sandows stated that, she wasnt looking at an
apartment even though there are many is excess, because they tend to be smaller,
crowded and impersonal, and lack outdoor space There is also an increasing
demand for these apartment in pockets outside the CBD, as many homebuyers
were bring priced out of inner Northern Areas. An oversupply will decrease the
price, and then the demand rises as a result. This could be both a good thing and a
bad thing for potential property buys as on one hand, it would cost them less, but
on the other, there would be much more competition because of the lower prices.