Applying Supply and Demand: Real World Examples

Supply and demand are essential phenomena in economics because they explain why prices and quantity of some goods and services can go up or down. That is why numerous economists, businesses, and governmental agencies spend much time measuring, forecasting, and understanding them. For that purpose, it is possible to use appropriate graphs that explain how changes in one phenomenon affect the other and how consumer behavior is affected. Interpreting the visuals and understanding which of them should be applied under a particular condition can be challenging, but mastering this skill can improve financial competency. Consequently, two graphs will demonstrate that the price of gold decreases because people have a negative view of the future, while used car prices have risen because the market became larger.

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A decreasing price of gold is an important challenge for the economy, and many experts draw attention to this condition. A news article by Hyerczyk (2021) addresses this situation, and the author admits that investors trade gold futures cheaper against the background of buying more US dollars. The article specifies that gold futures lost 0.25% of their price on August 17, while the US currency attracted investors because it could protect their funds against Afghanistan turmoil, Covid-19 spread, and other threats (Hyerczyk, 2021). Hyerczyk (2021) also highlights that Federal Reserve officials’ announcements can significantly affect gold prices. However, higher domestic production rates became another essential factor to invest in the US dollar. Even though the decrease in gold prices is not so dramatic as it could be, it is still reasonable to watch this index to investigate the state of the American economy.

It is possible to use an appropriate visual to explain why gold prices move down. In particular, Graph B below is suitable to comment on the situation. This chart demonstrates that demand for the asset decreases, and it is possible to suppose that it occurs because people have a negative view of the future. Since the Covid-19 pandemic has become a significant shock for the whole world, many people are afraid of similar crises in the future. In this case, people tend to consume less and spend more, which makes the demand curve move downward. Once it happens, prices become lower to compensate for the decreased demand. However, lower prices also aggravate the situation because they signal suppliers to reduce the quantity of the products brought to the market.

Graph B
Graph B

A different situation is found with used car prices in the United States. Buchwald’s (2021) news article indicates that the recent months demonstrated an uncommon event in the economy when people considered selling their vehicles to obtain benefits. Such a behavior was present because used car prices were higher with every month from April to July (Buchwald, 2021). The comparison of this fact to last year’s data reveals even more significant results because used cars are almost twice more expensive than they were a year ago. Even though numerous experts stipulate that the prices should soon start decreasing, the actual data does not support these statements. In particular, Buchwald (2021) indicates that the global microchip shortage aggravates the problem. That is why it is possible to suppose that used car prices can become stabilized when pre-pandemic car production volumes are restored.

It is also possible to use a relevant graph to find out why the prices rose and how it affected the market supply. Graph A below reflects this situation, and it is used when the demand for a particular good becomes elevated. As for the case in the article, one can claim that the market became larger because more people wanted to buy used cars. Since severe economic problems appeared, there occurred more individuals who wanted to purchase a vehicle for lower prices. The market received the signal that consumers were ready to pay more for the goods when it happened. As a result, the upward shift in the demand curve took place, and the prices became significantly higher. In turn, suppliers qualified that situation as a signal to bring a more significant number of used cars into the market. That is why many individuals relied on the desire to obtain profits when they decided to sell their vehicles.

Graph A
Graph A

In conclusion, it has been demonstrated that appropriate graphs can be used to explain various economic processes. These visuals indicate what changes in demand or supply occur and what impacts these events have. In particular, the essay has considered two graphs that demonstrated decreases and increases in demand. On the one hand, the adverse expectations about the future contributed to a lower amount of gold futures purchases, which, in turn, made gold prices decrease. On the other hand, a larger size of the market led to the case that more consumers wanted to buy used cars, and they were willing to pay more for these vehicles. As a result, prices became higher, and this fact attracted more suppliers to bring their products to the market.

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Buchwald, E. (2021). Used car prices finally cooling after months of record surges – Why deals will still be hard to come by. Market Watch. Web.

Hyerczyk, J. (2021). Price of gold fundamental daily forecast – Underpinned by lower yields, capped by stronger US dollar. Yahoo Finance. Web.

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