Demand and
Supply
Demand and Supply
If Demand increases and supply
remains unchanged, a shortage occurs,
leading to a higher price.
If Demand decreases and supply
remains unchanged, a surplus occurs,
leading to a lower price.
Supply
If Supply increases and demand
remains unchanged, a surplus occurs,
leading to a lower price.
If Supply decreases and demand
remains unchanged, a shortage
occurs, leading to a higher price.
Demand and Supply
In this powerpoint, you'll discover the effect of
the changing relationship between demand and
supply on prices.
One example is oil prices.
Back in June 2014, the price of crude oil was up
around $115 per barrel.
As of January 5, 2015, it had fallen by 50% down
to $52 per barrel.
But why does the price of oil keep falling?
Table
Why has the Price of Oil Fallen?
•
•
•
•
On The Demand Side,
The economies of Europe have weakened due to
recession and therefore are demanding less oil.
People are becoming more environmentally
aware.
Vehicles are becoming more energy-efficient, so
demand for fuel is falling.
In China the demand for oil has fallen due to use
of alternatives.
Why has the Price of Oil Fallen?
On the Supply Side
• United States domestic production has nearly
doubled over the last six years.
• Saudi, Nigerian and Algerian oil that once
found a home in the United States is suddenly
competing for Asian markets, and the
producers are forced to drop prices.
• OPEC has not intervened to curb production
and stabilise price.
Benefits of falling oil prices
• Households will spend less on energy this year
because of the lower oil prices.
• Any motorist can tell you fuel prices have
dropped considerably in recent months.
• The fall should lead to lower prices all around.
Negative effects
• Oil producing countries, however, will
suffer as the prices continue to drop.
• Some smaller oil companies that are in
debt may go out of business, which in
turn will pressure banks that had to lend
to them.
• It is also contributing to deflation.
Conclusion
We can now see that the relationship
between supply and demand can
have a huge effect on prices and
therefore on every part of the
economy.