[1]The law of demand and supply is the one that describes the relationship [p between the prices, the quantities supplied and demanded at a particular period of time. It holds that when prices rise, the quantity demanded decreases whereas the quantity supplied increases. [2]Consequently, when prices fall, the demand for a commodity increases but the supply decreases. This is the universal law of demand and supply. The demand and supply curve is illustrated below showing the equilibrium price and quantity.
The equilibrium price is 10 whereas the quantity is 15.
However there are instances when prices are constant and only the other variable or determinants of prices vary. In such a scenario, there is either a shift in the demand or supply curve depending on the prevailing circumstances. [3]When supply increases without an increase in price, the supply curve shifts to the right, that is, an increase in supply. In such a case the prices will be forced to fall due to pressure that is mounted on the quantity supplied without a proportionate increase in demand.
[4]In the same way, if the quantity demanded increases without a decrease in price, the demand curve shifts to the right indicating that the prices will be forced to rise as pressure mounts on the little supply available in the market. This is the economic explanation of the behavior of demand and supply when any of the variables affecting either demand or supply changes.
The following graph illustrates this explanation;
[5]The shift in demand to the right causes the price rise to 14 as shown in the diagram.
In the same way, the rise in supply shifts the supply curve to the right thus causing the price to fall to 8. However the joint effect results into a change of equilibrium to a price of 13 and a quantity of 20. This is just an example to exemplify the way the products of NIKE inc. will respond and how their prices will vary from time to time.
The red curves represent the shifted curves. It should not be confused with a movement along the curves. Usually, a movement along the curve is due to a price fall or a price increase. In such a case, it is only the price that quantity demanded that will change. Also, a movement along the supply curve follows from the change in prices that is a fall or rise in the price. The quantity supplied will change proportionately as explained by the law of demand and supply-http://biz.yahoo.com/
Nike inc. is a global company that specializes in the manufacture of sports shoes, jerseys, shorts and other sports kits which are supplied and used all over the world. Nike’s market is majorly in the field of sport; football and athletics. [6]The advertisements of the company’s products were during the early periods advertised through what was famously known as ‘the word-of-foot’. This was a very common phrase in the 1980s and early 1990s. Due to the rise in the number of sports and sporting activities, Nike’s products have increases in number and variety. The innovativeness and creativity has led to increase in the supply and demand of the product.-http://www.cs.ucla.edu/
Following the discussion about demand and supply and shifts that arise from the forces of demand and supply of the products of Nike Company, there have many different many scenarios that have been observed in many parts of the world. Sometimes, the prices have followed the laws of demand and supply but in other instances it has not.[7] A shift in the supply curve to left of the company’s products and a shift to the right of the demand that is caused by a rise in demand and a fall in supply generally increases the prices of the product.
But it is worth noting here that the cost of production of the company’s products does not increase. Therefore the prices do not generally have to increase. In regions where there is high competition from other sports kit makers for example , and other s have forced the prices of the company’s products to fall despite the fact that there supply has fallen whereas the demand has been surging upwards.-http://www.reuters.com/articles/environments News/
[8]But all in all the prices have generally gone up following the decrease in the supply of the product. But the company is not in a decline stage but at an expanding spree, for example the recent acquisition of the Umbro Ltd in England which has been a major supplier of soccer equipments. Thus there is an increase in supply that follows from the increase in the demand for the product. Also, there has been generally fall in the price of the product of the company due to the forces of competition, improved technology, and other forces that would cause the products to trade unfavorably if its prices remained high.
The real life situation has been that the there has been a shift in the demand curve to the right, that is a general increase in demand; prices increase. There has also been an increase in the supply of the products following the expansion and growth of the company, thus generally, prices have gone down. The general equilibrium is that the price falls and quantity rises.
[9]We can therefore confidently say that the responsiveness of the demand for the products of Nike (that is price elasticity of demand) is elastic following the fact that here are competitors and that Nike is not a monopoly in the manufacture and supply of sports kits. The revenue, even from reports supplied by the company show that profits have been increasing. But the revenue is not entirely out of the increases prices due to increased demand but it is partly from the increased quantity sold due to the increased supply of the product.
References;
- Gerber, James. (2001). International Economics. 2nd London: Addison Wesley Longman.
- Heilbroner, Robert and Lester Thurow. (1998). Economics Explained. 3rd ed. Chicago: Simon and Schuster Publishers.
- Pomeranz Kennedy. (2000). The Great Divergence in The World Economy: Demand and Supply. London: Princeton University Press.
- Samuelson, Paul and William D. (1998). Economics: An Introductory Analysis. New York: McGraw-Hill.
- http://biz.yahoo.com/
- http://www.reuters.com/articles/environments News/
- http://en.wikipedia.org/nike/
[1] Gerber, James. (2001). International Economics.
[2] Pomeranz Kennedy. (2000). The Great Divergence in The World Economy: Demand and Supply.
[3] Samuelson, Paul and William D. (1998). Economics: An Introductory Analysis.
[4] Pomeranz Kennedy. (2000). The Great Divergence in The World Economy: Demand and Supply.
[5] Gerber, James. (2001). International Economics.
[6] Samuelson, Paul and William D. (1998). Economics: An Introductory Analysis.
[7] Pomeranz Kennedy. (2000). The Great Divergence in The World Economy: Demand and Supply.
[8] Gerber, James. (2001). International Economics.
[9] Samuelson, Paul and William D. (1998). Economics: An Introductory Analysis.
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