Demand is the willingness and ability of a consumer to buy a commodity at a given price over a period. Demand can be explained diagrammatically by the use of a demand curve. A demand curve is a graph showing the relationship between the price of a particular commodity and the quantity customers are willing and able to buy at that price over a given period. Details for a demand curve are obtained from a demand schedule. A demand schedule shows the number of commodity buyers are willing and able to buy at each different price in a tabular form. This applies if all other factors that affect demand such as income, taste, preference and fashion, price of complementary and substitute goods remain constant. The demand curve is the function of price and quantity demanded only. When the price of commodity increases, the demand for it reduces and vice versa. This is the law of demand. The demand curve is a downward-sloping curve. It is always negatively sloped for all common goods. This implies that if the price of that commodity decreases, more of the commodity will be bought. Price as a factor affecting demand only causes movement along the demand curve (O’Sullivan and Sheffrin 74).
The example below illustrates the relationship between the price of gasoline and its demand.
If the price of gasoline is $ 2.00 per liter, the amount of gasoline bought is 50 liters per week. If the price drops to $ 1.75 per liter, consumers will demand 60 liters. With a further drop in price to $1.50 per liter, they will demand 75 liters. At $ 1.25 per liter, they will be able to purchase 95 liters and at $1.00 per liter, they will be willing and able to purchase 120 liters. The demand schedule for gasoline will thus be.
|Buyer Demand per Consumer|
|Price per liter||Amount of liters |
demanded per week
From the above table it is evident that as the price for gasoline falls, consumers are able and willing to buy more of it. The relationship between the price and quantity demanded can be represented graphically as the demand curve for gasoline as shown below.
Supply refers to the number of product suppliers are willing and able to supply at a specific price over a given period. When the price of commodity increases, the quantity supplied of the commodity increase and vice-versa. This relationship can be depicted by the use of a supply schedule. A supply schedule is a table that shows the quantities of commodity suppliers are willing and able to offer at various prices. At high prices, more suppliers are willing and able to supply and hence high supply while at low prices very few suppliers are willing and able to supply and hence low supply.
The following example shows the relationship between the price and the quantity supplied of gas in an economy.
A table of gas supplied in an economy:
|Gas Supply per Consumer|
|Price (in $ for every liter of gas)||Supplied quantity (Liters/week)|
According to the table above, we can deduce that the supply of gas seems to increase with an increase in gas prices. Some 50 liters of gas is supplied every week at $ 1.20 for every liter. At the price of $ 2.15, the supply is at 120 liters per week. There is a direct relationship between the quantity supplied and the price and hence the supply curve slopes upwards. This relationship between the price and quantity supplied can be depicted by the use of a supply curve (Thomas 4).
This is shown in the graph below.
The forces of demand and supply determine the price and quantity of goods demanded and supplied in a free market situation. This is usually the case at a time when supply quantities are equal to demand quantities. This is the equilibrium point. At this point, there is no surplus or deficit in the market. When a shortage occurs, excess demand forces the prices upwards as consumers compete for the product. Consequently, when a surplus occurs there is excess supply. To remove surplus suppliers lower the price so that much of the commodity is bought. When we draw a graph integrating supply and demand functions, the equilibrium point becomes the point at which the tow factors (supply and demand) traverse. The graph below shows the equilibrium price and quantity as the point where the demand curve intersects with the supply curve (O’Sullivan, Arthur & Sheffrin 2003. pp. 81-83).
Demand and supply for cell phones
Cell phone technology is relatively new in the world. The cell phone industry has grown extremely fast over the last 20 years. Due to the efficiency and effectiveness associated with cell phone communication, almost everyone has a mobile phone nowadays. Landline phones are used seldom today. By 1999, 2% of mobile phone subscribers had dropped the use of landlines. By 1999, there were 72 million cell phone users. By 2004, 2007 the cell phone main display market stood at $ 10.9 billion with 1.27billion units. The market continued to grow. By 2008, the market had reached $13.2 billion with 1.46 billion units produced. The demand for cell phones has always been high. Despite the increase in the cell phone producing companies, the demand continues to grow due to constant inventions and innovations in this industry. Cell phone companies have increased in the industry. The competition has greatly increased which has resulted in a reduction in the price of the handsets as well as quality improvement. The cost of using a cell phone has also been reduced drastically. Firms are competing for market share through the provision of high-quality products and services as well as reducing calling rates (Shiels 2).
Although large-scale cell phone manufacturers from developed countries dominate the cell phone market, competition by firms from developing countries in the Asian continent cannot be overlooked. The leading producers of cell phones are Nokia, Samsung, Motorola, LG, and Sonny Erickson respectively. The units produced by each of them and the market share are shown below.
|Firms||Units produced||Market Share|
|L G||24.4 million||8.5%|
|Sony Ericsson||22.3 million||7.8%|
The Nokia Company is the leading cell phone seller in the world. In the year 2008, it sold over 115.4 million handsets increasing its market share to 40.1% as compared to the year 2005 when it sold 66.6 million units with a market share of 32%. This resulted in a growth of 29.6%. Samsung Company competed favorably although at a slower note than Nokia. Its sales in the year 2008 rose to 46.3 million with a market share of 16.1%. Motorola came third producing 27.4 units and commanding a market share of 9.5%. It had to rely on a low prized handset to penetrate the market. LG and Sonny Ericsson companies came fourth and fifth respectively (Hyper College 2)/
Hyper College. Demand and Supply: How Prices are determined in a Market Economy. 2009. Web.
Thomas, Humphrey. Marshallian cross diagrams and their uses before Alfred Marshall: the origins of supply and demand geometry. Economic review. 2009. Web.
Shiels, Maggie. A chat with the man behind mobiles. BBC News. 2003. Web.
O’Sullivan, Arthur, and Sheffrin, Steven. Economics: Principles in action. Upper Saddle River, New Jersey: Pearson Prentice Hall, 2003