Demand and Supply in Canada (Essay Sample)

Demand and Supply in the Canadian EconomyAuthor(s)InstitutionAuthor NoteProgram
Introduction
Markets comprise of buyers and sellers of particular goods and services. The behavior of consumers is dependent on demand curves. Demand for goods and services is as a result of buyer behavior. Sellers, on the other hand, determine the supply of goods and services. As such, supply curves are a reflection of sellers’ behaviors. In economic theory, the consumer prices would be a reflection of the real cost of goods and services in fully competitive market. The competitive market, in this case, represents a market with many buyers and sellers such that there is negligible impact on the market price from each of them. The theory holds that in such a scenario, the choices made by customers would endeavor to minimize wastage, shortages and surpluses. At the same time, this would allow for the optimal use of resources to satisfy market needs.
Demand
The quantity of goods or levels of services that any consumer would wish to pay for is dependent on a number of factors. They include; preference, income, age, substitutes, etc. The price of the particular commodity is also in itself a factor. The law of demand holds that customers will purchase a larger quantity of a product for low-priced commodities. The law, however, only holds when all other factors, such as income, remain the same. The assumption is quite important in economic studies.
Despite several factors having an influence on consumer purchasing behaviors, a demand curve only lays emphasis on the change in price per unit of a product with all other factors remaining constant. For instance, the demand curve may show the changes in prices per unit of a product, but the consumers’ income remains invariant. Such is a shortcoming of demand curve. In a standard setting, the income certainly determines the quantity of goods purchased by consumers. For normal goods, an increase in income translates to increased consumption of goods and services. For inferior goods and services, the consumption decreases with an increase in income. A good example of such a scenario is the case of public transport.
The price of related commodities also constitutes another factor that affects demand for goods and services. The related goods constitute of complements and substitutes. Complementary goods are those that are consumable together while substitute goods are those in which one is usable in place of another. The demand for complementary goods increases and decreases simultaneously. For instance, for two supplementary goods, hiking the price of one commodity results in a reduction in demand for the other. The vice versa is also true. In Canada, the energy industry serves as a classic example.
Reference case: End-Use Energy Demand by Sector
The demand for energy increases at a first rate in with low prices. The average annual rate has a projected value of 1.2% over the projection period. In the event of high prices, demand decreases to an estimated value of 0.8% annually. Agreeably, there is a downward pressure for growth of demand in the energy sector exerted by the high prices. The effect of the prices on demand, however, is offset by substitute sectors such as oil and gas sectors. For low prices, the demand is low whereas it is higher for high prices.
Supply
Just like the demand, supply also plays an important part in the commodity market analysis. With supply, the characteristics demonstrate the behavior of sellers in the production and sales of their products. The quantity supplied represents the amount of a particular commodity that sellers are willing to sell in the market. Understanding supply factors is, therefore, equally important in forecasting future supply expectations including the way in which they affect the market price.
The law of supply holds that an increase in the selling price will motivate sellers to increase the quantity of the particular product in the market. That, in itself, is a clear indicator of the positive relationship between supply and price. In addition to the price, several other factors affect the market supply. Some of them include; the number of other sellers supplying the same product in the market, price of inputs, technology, price of substitute commodities, and the weather. The argument in the law of supply is that an increase in commodity prices translates to greater profits that expand production. The increased production, as a result, satisfies the current demand for particular commodities or services. In the end, additional production calls for new demand. When the prices fall, there is the indication that there is a surplus in the market. Production slows down for demand to go up, and the cycle continues over and over.
When the demand for a particular service or product is high, and the supply is low, this leads to a shortage. A perfect example of such a scenario is the Canadian healthcare demand. In a previous analysis of the labor market conditions, the projections revealed a labor shortage in healthcare occupations expected to continue from 2013 to 2022. Increasing healthcare needs due to the aging Canadian population is bound to increase the demand for several healthcare services including healthcare professionals. The estimation is also that job openings due to retirements will supersede those from new creations. As such, high labor demand in healthcare occupations will exceed the expected supply. The main reason is that the expected number of school leavers who form the majority job seekers, will not adequately satisfy the demand and supply for the projected period thus creating the shortage. The situation will, however, be different depending on specialty.
Equilibrium
Economically, when the quantity supplied falls below the quantity demanded, this creates an excess demand. On the other hand, when quantity supplied is above the quantity demanded, this creates an excess supply. Most firms in the market would want to manufacture commodities that satisfy the market demand without either surpluses or shortages. Such a scenario gets rid of excess costs related to inventory maintenance, keeping in mind that some of the commodities may never sell. Prices hike when there is excess demand, and they drop when there is excess supply. Equilibrium, therefore, results from the cancelation of the dynamic forces that change the price and quantity. At equilibrium, the quantity demanded, and the quantity supplied are equal. The price of a commodity at its eq...