Question

Apply supply and demand analysis as a qualitative forecasting tool to see the “ big picture” in competitive markets.

Answer 1

Demand means the amount of a quantity of a product that a buyer is willing to buy. There is a direct relationship between the price of a commodity and its price.

Supply means the amount of a particular commodity that a seller is willing to sell at a particular price.

Price therefore plays an important role in both demand and supply.

In a competitve markets there are large number of buyers and seller of a commodity. A single seller or a buyer has a very little or no market power In a competitive market the price is set by forces of demand and supply. The market will be in equilibrium.

An increase in demand will rise the prices above equilibrium price and decreases in demand will cause the price to fall below equilibrium price.

And likewise, an increase in supply will foce the price to go down below equilibrium price and decrease in supply will do the opposite.

Therfore the firms under the competitive market has to forecast the demand and supply carefully to survive and earn profit.