Department of Agriculture and Economic Research Service

Question: Discuss about the Department of Agriculture and Economic Research Service. Answer: Introduction In the context of microeconomics, demand and supply are two key components of economic model or economic theory. Both these components play a significant role to determine the price of a commodity in a market. The demand points toward the quantity of a product or service that buyers want to acquire at a pre-determined price. Moreover, supply stands for the quantity of a product or service that suppliers of a particular product want to bring in the marketplace at specified prices. Along with this, according to the law of supply demand, there is an inverse relationship between the demand, supply and prices of goods/services. An increase in the demand of a product or service raises the price of that product or service in an automatic manner. A decrease in the demand of a product or service generally reduces the price of product or service. Along with this, for this essay, I would like to choose Butter as a product to show the relationship between demand and supply factors properly. Mor eover, the major factors that may affect the demand as well as supply sides of the market would also be discussed in this research essay in an appropriate manner. Demand and Supply of a Product It is true that, Butter is preferred by most of the people. People usually make use of butter on the regular basis. The demand of butter can be seen high as comparison to other dairy products. Due to the high demand of butter, the price of butter also can be seen high in the marketplace (Becker, 2011). According to the law of demand supply, an increase in demand of butter will raise the price of butter automatically. The below graph is useful to show the effect of increased demand at the price of a commodity. The graph illustrates that if the demand of a product will increase then the price of that product will elevate as well. In the context of economics, there are numerous factors such as: price, population, substitute products, income level, etc. that may influence the demand and supply side of the marketplace. The major factors that have an effect on the demand and supply of a product are described as below: Price: Price is a major factor that affects the demand and supply side of a commodity in the marketplace. According to the law of demand supply, an increase in the price of a product will reduce the demand as well as supply of that product in the market. For example, if the price of butter increases then the demand of butter will decline automatically (Griffith, OConnell and Smith, 2015). Along with this, it should be noted down that, an increase in the price of milk can be considered as the major reason behind the increased price of butter. It is because of milk is the main component in butter. Due to the increased mil prices, the production costs of butter increase. The increased prices of butter decline the demand and supply of butter in the marketplace. The below graph is helpful to portray a shift of supply (S1 to S2) due to an increase in the price of product: Income Level: Income level can be measured another major factor that influences the demand and supply of a commodity in the market. An increase in income level of people will amplify the demand of butter in the market. Moreover, a decrease in income level will reduce the demand for butter in a market. In view of that, people who earn more will make more demand for butter in the marketplace. A high demand will lead to a high supply of butter (Candler and Townsley, 1962). So, income level is a major factor that has an effect on the demand and supply side of a product. Price of Substitute Goods: Price of substitute/alternate goods is also the other major factor that influences the demand and supply side of a commodity in the marketplace. Margarine, Hummus, Cheese, Ghee, etc. are the major substitutes of butter. An increase in the price of butter will increase the consumption (demand) of its substitute goods in the marketplace (Cleanthous, Mackintosh and Anderson, 2010). Moreover, the increased prices of butter not only increase the demand; but also amplify the demand of its substitute goods in the marketplace. Competition: Competition is the most important factors that affect the demand and supply side of a product in the market. There are lot of competitors exist in the market. They make all their possible efforts to accomplish competitive advantages over the competitors. So, they provide same product at a lower cost. In todays highly competitive market, customers move toward the firm that offers same commodity at lower costs (Grand and Robinson, 2016). In view of that, competition can be considered a major factor that affects the demand and supply of a product in the marketplace. Preferences of Customers: Customers tastes preferences is the other factor that widely influences the demand as well as supply side of a commodity. If people are fond of butter then they will only purchase butter instead of its substitutes products. They do not care about prices to buy products according to their brands, tastes, and preferences. The lover of butter will only buy butter at any cost (Haidacher, Blaylock and Myers, 1988). So, suppliers of butter will always make available butter for such types of customers. As a consequence, these are the major factors that may influence the demand and supply of a commodity in both positive and negative manner. Conclusion On the basis of the above analysis, it can be concluded that, demand and supply are two major components that are related to the economic theory. Both these factors have numerous major affects on one another. Along with this, there are numerous factors those may influence the demand as well as supply of a product or service in the marketplace. For example, price, preferences tastes of customers, income level, substitute goods price, competition, and so on are such factors that have an effect on the demand as well as supply of a commodity in the market. References Becker, G. S. (2011). Economic Theory. USA: Transaction Publishers. Candler, W.V. and Townsley, R. (1962). A Study of the Demand for Butter in the United Kingdom. Australian Journal of Agricultural and Resource Economics, 6(2), pp.36-48. Cleanthous, X., Mackintosh, A.M. and Anderson, S. (2010). Spreads in the current Australian market: butter, dairy blends and margarine spreads. Food Australia, 62(10), p.438. Grand, J.L. and Robinson, R.V.F. (2016). Economics of Social Problems. USA: Springer. Griffith, R., OConnell, M. and Smith, K. (2015). Relative prices, consumer preferences, and the demand for food. Oxford Review of Economic Policy, 31(1), 116-130. Haidacher, R. C., Blaylock, J. and Myers, L. H. (1988). Consumer demand for dairy products. US Department of Agriculture, Economic Research Service, 1-72.