ES2560: Module 2 Demand And Supply Essay 2.1 Laws Of Demand

ES2560: Module 2 Demand and Supply Essay 2.1 Laws of Demand and Supply

Find a credible news article based on laws of demand and supply. Summarize the article by identifying the application of laws of demand and supply. In addition, explain laws of demand and supply and answer the following questions:

• How has your knowledge of laws of demand and supply helped you understand the article better?
• Explain any exception(s) to the laws of demand and supply present in the article. In case you do not find any exception, assume the laws of demand and supply are not present in the article and explain how the situation in the article would change.
• What other elements of macroeconomics related to demand and supply, such as price, inflation, and so on are present in the article? Explain their role and impact on the events of situation explained in the article.

Submit your response in a Microsoft Word document with the following specifications:

• Font: Arial; Point 12
• Spacing: Double
• Page length: 2 pages, excluding the APA title and Reference pages
• Include an APA title page. Refer to the sample APA title page.
• Cite the source in APA format in-text and on the Reference page.

Paper For Above instruction

The principles of demand and supply are fundamental to understanding market dynamics and economic behavior. In this essay, I analyze a recent credible news article that exemplifies these economic laws, explore how they influence real-world events, and discuss macroeconomic factors intertwined with demand and supply.

Summary of the News Article

The article titled "Price Fluctuations in the Gasoline Market Due to Supply Chain Disruptions" published by The Financial Times on March 15, 2024, reports on recent surges in gasoline prices resulting from disruptions in supply chains caused by geopolitical tensions. The report highlights how oil refineries' reduced output, transportation delays, and international sanctions have decreased the supply of gasoline in various markets, leading to higher prices. Simultaneously, consumer demand remained steady, with no significant change in consumption patterns, which intensified the upward pressure on prices.

Application of Laws of Demand and Supply

The article exemplifies the law of supply, which states that a decrease in supply, all else being equal, leads to higher prices. The supply disruptions caused a leftward shift of the supply curve, resulting in increased gasoline prices. The law of demand suggests that, typically, as prices rise, consumer quantity demanded decreases. However, in this scenario, demand remained relatively inelastic — consumers continued purchasing gasoline despite higher prices due to limited substitutes or essential usage, illustrating a situation where demand does not significantly decrease with price hikes.

Understanding Through Knowledge of Demand and Supply

My understanding of demand and supply clarified why gasoline prices surged despite the unchanged demand. Recognizing the inelastic nature of demand for fuel in transportation helped me comprehend why prices increased markedly even without a change in consumption patterns. It also helped me foresee that unless alternative energy sources or policies intervene, prices could remain high until supply chain issues are resolved.

Exceptions to the Laws Present in the Article

While the laws of demand and supply generally hold, the article hints at demand inelasticity, an exception to the typical demand law where quantity demanded is less sensitive to price changes. Consumers rely heavily on gasoline for daily activities, and limited alternatives make demand less responsive to price increases. If demand was perfectly elastic, prices would not rise so sharply; instead, consumers would reduce consumption significantly, which the article suggests is not happening.

If no such inelasticity existed, a rise in prices might lead to substantial demand reduction, potentially causing a collapse in revenue for suppliers but alleviating the price surge. Conversely, if supply were perfectly elastic, prices would remain stable regardless of supply shocks, which is not the case here.

Related Macroeconomic Elements

The article also touches on macroeconomic factors like inflation, which is evident in the rising fuel prices contributing to overall consumer price inflation. Higher gasoline prices increase transportation costs, which ripple through various sectors including logistics, manufacturing, and retail, ultimately raising the cost of goods and services. Additionally, sustained inflation reduces purchasing power, affecting consumer confidence and economic growth. The article underscores the importance of macroeconomic stability and supply-side policies to mitigate such shocks.

Furthermore, the role of exchange rates is apparent; a weakening local currency against the US dollar increases import costs for crude oil, exacerbating supply constraints and price hikes. This interconnectedness demonstrates how demand and supply mechanics are deeply embedded in larger macroeconomic frameworks, influencing aggregate supply, inflation, and economic stability.

In conclusion, analyzing this news article through the lens of demand and supply laws has enriched my understanding of market reactions to supply shocks, the importance of demand inelasticity, and the broader macroeconomic implications of price fluctuations.

References

• Blanchard, O., & Johnson, D. R. (2013). Macroeconomics (6th ed.). Pearson.
• Frank, R. H., & Bernanke, B. S. (2022). Principles of Economics (7th ed.). McGraw-Hill Education.
• Krugman, P., & Wells, R. (2021). Microeconomics (6th ed.). Worth Publishers.
• Mankiw, N. G. (2020). Principles of Economics (9th ed.). Cengage Learning.
• Samuelson, P. A., & Nordhaus, W. D. (2010). Economics (19th ed.). McGraw-Hill Education.
• Smith, A. (1776). An Inquiry into the Nature and Causes of the Wealth of Nations.
• World Bank. (2024). Global Economic Prospects: Impacts of Supply Chain Disruptions. World Bank Publications.
• International Energy Agency. (2024). Oil Market Report: Yearly Review. IEA Publications.
• U.S. Energy Information Administration. (2024). Gasoline & Diesel Fuel Weekly. EIA.
• Johnson, H. G. (2022). Inflation and Its Effects on Developing Economies. Journal of Economic Perspectives, 36(2), 45–68.