Supply and Demand Framework System †Free Samples to Students

Question: Discuss about the Supply and Demand Framework System. Answer: Introduction: Azevedo and Leshno have clearly stated that lower price does always imply greater demand. This is simply because as and when a good is sold at a cheap and affordable rate, the consumers are able to get more value for their money, resulting in consumer surplus. The authors rightly state that this may not hold truth for substitute goods. For example, even if a box of Coffee is charged low, if the price of Tea is still lower, people would prefer to buy the substitute goods only. However, they also refer to the Demand Curve which clearly demonstrates an inverse relation between the price of a commodity and the demand of the same. One major strength of the article is that the authors have explained the inverse relation between demand and price of a commodity with the help of economic theories, especially the theory of Demand Curve that helps in explaining the scenario in a more effective way. The authors also refer to various cases, where the demand for a product has been found to increase with the reduction of price. This adds to the credibility of the research. However, the weakness of the article is that it does not consider the case of Veblen goods and Giffen goods which are exceptions to this concept. Forstall offers a counter-perspective to the well-known theory of economics regarding the relation between price and demand of a good. Forstall refers to the Apple products and shows how even if the price goes up, consumers will buy the product. Similarly, he also explains that if the price goes down, it may decrease demand of the goods. The reason behind this is the Apple products are regarded more as status symbols rather than necessary products. Hence, Forstall claims people will tend to consume them only if these are priced higher than the rival products. Consequently, a fall in the price will not prove how rich and tasteful these consumers are, and hence with the fall in price, consumer demand will not necessarily increase. A major strength of the article lies in the way it offers a counter-perspective to the established economic theory of price and demand. The article challenges the traditional theory, but it could draw on more examples, as it only refers to the Apple products, and thus the argument becomes weak. The article however is a bit biased in style, as it does not consider the exception. When the price increases, the middle income buyers will demand more of the expensive product even though the higher class may not demand it as before. Saintvilus in this newspaper claims that even if the price of an I Phone will increase, he will not still think of stopping to consume the product. He states that I Phone has become more of an obsession for many, and considering the social status associated with it, people will not buy it at a low price. The newspaper argues that the price reduction will not essentially imply demand increase, and this is especially true in case of luxury and status commodities. The newspaper article lacks critical depth and theoretical framework that is the only weakness of the article. Otherwise, the article is well-structured. Singh, J., 2017.Price Demand Relationship: Normal, Inferior and Giffen Goods. [online] Economics Discussion. Available at: https://www.economicsdiscussion.net/cardinal-utility-analysis/price-demand-relationship-normal-inferior-and-giffen-goods/1069 [Accessed 18 Aug. 2017]. The author argues that in case of an Inferior good, the reduction in price will not always lead to the increase in demand. There are inferior goods which according to Singh are known to be consumed by people of lower social status. As a result, the demand increase on price reduction of these products will entirely demand on the income of the consumer. In case the consumer income increases, he will not think of buying the inferior good even if the good is charged at a low price. The argument is wells-structured and offers a comprehensive insight into the different types of goods, such as inferior goods and giffen goods. The author thoroughly discusses nad explains why the theory of demand curve does not hold truth in all situations. The content is unique as it explains the importance of income effect in determining the relation between consumer demand and price reduction of a commodity. However, while explaining the inferior goods, the author refers to possible exceptions of this situation, and yet has not explained the exceptions well. In the article, the author argues how even if price does not influence quantity demanded, quantity demanded will be more likely to influence price. Referring to the Arabica of coffee beans of USA the author rightly claims how the product being unique has a higher demand, that in turn will result in higher price. In other words, the price will not be low and yet the consumers will be responsible for the same. The article offers a unique perspective and shows how often the price does not determine the quantity demanded, rather the situation can turn out the other way round. This content is unique as it deconstructs the economic theory of demand curve and shows quantity demanded has a greater impact on price. Bibliography: Azevedo, E.M. and Leshno, J.D., 2016. A supply and demand framework for two-sided matching markets.Journal of Political Economy,124(5), pp.1235-1268. Forstall, T., 2017.Forbes Welcome. [online] Forbes.com. Available at: https://www.forbes.com/sites/timworstall/2012/08/21/the-limit-to-apples-value-are-they-a-veblen-good/#4bc3712cd9f3 [Accessed 18 Aug. 2017]. Lorenzatti, L., 2017.Americans' Coffee Guzzling Is Pushing Bean Prices Higher. [online] Fortune.com. Available at: https://fortune.com/2016/07/01/americans-coffee-prices/ [Accessed 18 Aug. 2017]. Saintvilus, R., 2017.Yes, I Would Pay $1,000 for an Apple Inc. (AAPL) iPhone 8. [online] InvestorPlace. Available at: https://investorplace.com/2017/08/yes-i-would-pay-1000-for-an-apple-inc-aapl-iphone-8/#.WZaCs1UjHIU [Accessed 18 Aug. 2017]. Singh, J., 2017.Price Demand Relationship: Normal, Inferior and Giffen Goods. [online] Economics Discussion. Available at: https://www.economicsdiscussion.net/cardinal-utility-analysis/price-demand-relationship-normal-inferior-and-giffen-goods/1069 [Accessed 18 Aug. 2017].