An Assessment of the factors which change demand

and supply

I.D 0224ROAA0409

Teacher Name: MS ELLI SEMSAR

Student Name: Atif Ali Mushtaq

COURSE .MBA 1.C

1
Table of Contents

1 Title page 1

2 Table of contents 2

3 Introduction 3

4 A convenience food 4

5 B Product purchased on Internet 5

6 C- Film and Cameras 6

7 D-Video (VHS) Rented from Retail Outlet 7

8 E- Pay-per view television Programming 8

9 F-Crude Oil 9

10 G-Hotel Rooms 10

11 H-Fast Food Outlets in Emerging Markets 11

12 I-Credit Cards 12

13 J-Laptops Computers 13

14 References 14

15 Bibliography 15

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Introduction:-

In economics terms, the place where consumers buy their products and manufacturer
sells their products is known as a place “Market”. To judge the value of product and
give it a price there are two forces who measure the price of the product. That is
Demand and Supply of the commodity. In demand and Supply there are number of
factors responsible which can change the demand and supply for different products.
For an example it can be, number of population, taste, income, substitute goods, price
and etc.

The common phenomena is human wants are unlimited and we can not buy
everything, because of limited resources, in order to make a best choice between
number of available product, we need to make best choice, and it depends on the
standard of living of every individual. The economic enhance the knowledge of the
nation to make a best choice, for example if the economy wants to spend on its
defence system or food.

In this report, an attempt has been made to forecast the demand and supply of few
products, from past data that either there will be rise or fall in the demand of the
certain factors. It has also been tried to investigate that what are those factors which
are responsible for the growth or decline for those products in the future. The first part
of report focus on the demand side of the product and the second part consider the
factors which affect the supply side only. There is a diagrammatic representation for
the products and it is also mentioned that either there will be rise or fall in the demand
or supply of the product.

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A-Convenience foods
In this report an attempt has been made to financially analyze the data recorded from
the balance sheet and income statement of McDonald and it is revealed that the
demand for the convenience food has been raised steadily. The main factor involve is
the change of taste because of economic downturn., due to economic crises, people
will spend more time in business and organizations, and there is a clear indication
they will not be able to spend more money in expensive restaurants. That’s why they
will look to buy quick and easy convenience foods on cheap prices.

In the US, sales of pasta & tuna at least a year rose 5.4 percent. Internationally, on
average store sales rose 7.1 percent in Europe, led by sales in the United Kingdom,
France and Russia. They rose 10.2 percent in the Asia-Pacific region, the Middle East
and Africa. The 7.1 percent rise in worldwide same-store sales came on top of a 5.7
percent rise in January of 2008; total sales rose 2.6 percent in January.
Factors responsible for increase in demand
The main factors responsible for increase in demand are growing number of
population and the cheap prices of the food, another important factor is the
considerable number of woman who are spending more time at work, and do not have
sufficient time to make food at home.

Diagram-I A rise in the demand of convenience food

P D1 S

E1

D1

S D

O A rise in demand
Q

The above diagram is representing the rise in the demand curve, where O,Q on X-axis
is quantity and O,P is the price of product. The line D,D is the old line for demand
and D1,D1 is the new demand line, crossing the supply line at new equilibrium point.

www.McDonald.com, financial report for year end 2008, retrieved on 7-june-2009

4
http://www.busrep.co.za/index.php?from=rss_Business
%20Report&fArticleId=4833845, retrieved on 8th-june-2009

B- Product Purchased on Internet

The online purchase of products is very common, and this trend is increasing day by
day as it saves the time of the public. People do not bother to go at market place and
they can browse on just one click thousands of different items. As we are approaching
towards digital world this trend will rise gradually, because of its famous features like
free home delivery, advanced search option for your products, and the very good
option of comparing prices. Under the category of (Product Purchased on Internet) an
attempt has been made to significantly compare the data of last few years from the
annual balance sheet and income statement of well known online market EBay.
Factors responsible for increase in demand.
After the above discussion the main factor which is responsible for the increase in the
demand for products purchased via internet is Preferences. The facts and figures
shows that this trend is growing gradually and this will grow more in the future,
because of its strong features.
San Jose, Calif., July 16, 2008, eBay Inc. (NASDAQ: EBAY) reported financial
results for its second quarter ended June 30, 2008. The ecommerce company posted
second quarter revenue of $2.20 billion, up $361 million from the same period last
year. Following is the data which was recorded from the Income statement of the last
3 years of EBay Company.
Table-I Total Revenue of Last 3 Years (all figures are in thousands)

Period ending 31-dec-2008 31-dec-2007 31-dec2006

Revenue figures 8,541,261 7,672,329 1,256,792

Diagram-II a rise in the demand for the product purchased on internet

P D1 S

E1

D1

S D

O A rise in demand
Q

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http://finance.yahoo.com/q/is?s=EBAY&annual (retrieved on 4th June 2009)

C- Film and Cameras

The electronic market for the previous and current year has shown a rise and fall with
respect to different commodities. Where the demand for mobile phones have
increased, on the other hand side people have stooped using the cameras as new
mobile sets are coming with all the features of cameras. A good example here is
mobile set N-95, providing the 8 mega pixel cameras has absolutely reduced the
market for the digital cameras as the consumers feel more comfortable with this new
technologies where they feel more comfortable in this two in one facility.
The following are the net sales figure of the two major producers of the electronic
products; their sales figures for the last few years are given below.

Table-III Net sales/revenue figures of the Sony and Cannon Company

Product 2004 2005 2006 2007 2008
Canon(in ¥3,467,853 ¥3,754,191 ¥4,156,759 ¥4,481,346 ¥4,094,161
thousands)
Product(in 2008 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
billions)
Sony 2008 ¥1976.5 ¥2083.0 ¥2859.0 ¥1952.8
2007 ¥1744.2 ¥1854.2 ¥2607.7 ¥2089.6

Factors responsible for decrease in demand

The above records show that there is a net loss at the financial year ending 2008 and
the demand for the above products are decreasing gradually, and the main factor of
decrease in demand is a substitution effect.

Diagram-III A fall in the demand for film and cameras

P D S

D1

E1

D1

O A fall in demand Q

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According to Sony Corporation (reported from the home page Sony.net) “Starting
with the fact that the Sony Company just lost in billion dollars, its first loss in 14
years, and it's predicting a similar $1.1b loss next year. Electronics sales were down
17 percent, As the facts and figures provided in the Financial Statements by Thomson
Reuters in Google finance it was sadly reported that Sony company is facing a big
financial loss, which is considered to be a very greet depression period in last fourteen
years of the companies history. The company is upfront loss of (98,938) billions of
dollars in the financial year ending on 31 March 2009, the companies net income was
369,435 in 2008 and 126,328 in the year 2007. The current economic crises indicate
that the there will be low demand in the coming years 2010, and 2011.

http://www.canon.com/ir/annual/2008/report2008.pdf, Retrieved on June-1st-2009

http://www.sony.net/SonyInfo/IR/financial/ar/2008/qfhh7c00000htnrh-att/SonyAR08-
08.pdf Retrieved on June-4th-2009
www.sony.net/SonyInfo/IR/library/semc/pdf/q109.pd Retrieved on June 4th 2009

D-Video (VHS) Rented from Retail Outlet

Video home system always share a major part in the entertainment industry, In the
year 2007, 116 million DVDs were rented and 227m DVDs were sold, the market
worth £2.5 billion, but it was 7% down as compare to the last year. The online DVD
rental accounted for 24% for the whole rental transactions.
Factors responsible for decrease in demand
The Major factor for the low demand is substitute effect, as more than 90%
households have there own broadband facilities, and uploading the movies on DVD
print is not a big deal, the another impact is from the theft, by the development of
digital technology, including cheap methods of burning DVDs, downloads memory
devices also adversely affect the rental market. The aggregate loss to the industry of
film theft was estimated to be £404 million in 2007. The VHS is accounted for 0.3%
of the total rental market in 2007 and on the other hand side the growing awareness of
the internet and online purchase of movies represents that there will be further decline
in the rental market for VHS.

Diagram-IV A fall in the demand of Video Rented from retail outlet

P D S

D1

E1

D1

7
 O A fall in demand Q

http://rsu.ukfilmcouncil.org.uk/?pf=&low=&c=13&y=2007&s= Accessed on 2nd

June 2009

Source: PricewaterhouseCoopers, Global Entertainment and Media Outlook 2008–

2012, June 2008 accessed on 11-June 2009.
'Filmed entertainment revenue' includes box office receipts, home DVD/video (rental
and retail) and online rental and streaming revenues. It does not include TV revenues

E- Pay-per view television Programming

The digitalization has made a huge difference in the market of pay per TV market. By
2008 the market was expected to grow by 28% but due to major changes in the market
and competitive environment it does not achieve its expectations. Pay TV revenue
growth of 17% was recorded in 2008 and it is also expected that there will be growth
reasonably strong in the end of 2009, with a slight drop or rise to around 14%.
In 2007 there were 7.2 million users who were registered subscribers for sky and
virgin which use to pay for per view of TV channels, the number of users were
expected to rise by 13% in the year 2008, and 19% in 2009 according to the survey,
but it was decline due to the fast growing technology of internet, and availability of all
the channel at different websites.
Factor Responsible for decrease in demand
The main factor for the decrease in demand is compliment good or substitution
effect, the growing popularity and user friendliness of Laptops has declined the
market of pay per view of TV channel, and it is expected that by increase in the sales
of Laptops there will be low demand for this service in the next years.

Diagram-V A fall in the demand of subscription for per view paying users

P D S

D1

E1

S D1

O A fall in demand Q

http://www.budde.com.au/Research/Australia-Broadcasting-and-Pay-TV.html
Accessed on 12th June-2009

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Section 2-Supply and Factors responsible to
change in Supply
In economics supply means the availability of a product according to its demand, the
supply of a product change from the number of factors, the most important thing for
supply is that, when there is more price for commodity the supplier wants to sell
more, but if there is less price, the supplier want to sell less. The supply is said to be
directly related to the price, or they have positive relationship. The supply line is
upward sloping straight line, from left to right. The point at which it crosses the
demand line is known as the point of equilibrium.

F-Crude Oil
Oil is accounts for approximately one-third of all energy used in the world. In the
United States, consumption of petroleum products increased as average of 1.65%
annually, United States consumed 20,687.42 (1000 bbl/day) in the year 2006 only.
The demand for this industry always increase and the supply is always equal to
quantity demanded which keep the oil market at equilibrium prices. Whenever there is
rise or fall in the prices it is due to the world political crises.
According to the International Energy Agency the prices of oil will raise because of
the excess consumption, they have also projected the prices till 2030. According to
the Agency the prices are $67.70 in 2006, $63.83 in 2007, 98.52 in 2008, 58.61 in
2009, 77.56 in 2010 and 85.58 in 2011 respectively.
Factor responsible for decrease of supply
If the supply is constant but demand rise than there is always rise in price, due to the
lack of resources to compete with the need of users, there will be lack of supply and
if there will not be enough reserves or new resources, it will be difficult to control the
prices of the crude oil.

Diagram-VI A fall in the supply of crude oil

P D S1 S

E1

S1 D

O A fall in supply Q

http://www.eia.doe.gov/emeu/international/oilprice.html Accessed on 11th-June-2009

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G-Hotel Rooms
According to the BBC Report, the number of visitors from only EU has jump to 250%
and it is more than double in this month from June and it is forecasted that this figure
will rise gradually. An Office of National Statistics survey shows a leap of 250%,
from 76,000 visitors to 191,000. The number of visitors from pre-existing EU
countries rose by around 30% over the same time period. There are around 799 Hotels
in London only. Around one in every 500 passengers at UK airports, sea ports and
road entry points were questioned for the survey. London welcomed a record 15.2
million overseas visitors last year, it was announced today. The 2006 total was 9.4%
up on 2005, according to statistics from the Visit London organization. The largest
increase in visitor numbers came from Europe, up 11.6% to 9.6 million, followed by
the USA, up 5.2% to 2.4 million.
The foreign tourists spent £7.5bn during their stays in London last year, compared
with £6.9bn in 2005. Despite a weakening American dollar, spending by American
visitors rose to £1.5bn, the highest figure since 2000.Visit London chief executive
James Bidwell said: "London remains the number one city destination in the world
and the latest visitor numbers confirm this. Importantly, we have increased our
worldwide share of international visitor numbers [from 1.7% to 1.8%].
Tourism is worth around £15bn a year to the London economy and sustained
increases over time result in an increase in the number of jobs created for the
economy. This is particularly encouraging in the lead up to 2012 when the tourism
and cultural industries will be amongst the main economic beneficiaries from the
Olympic Games.
Factors responsible for increase in supply
Fortunately there are enough Hotels and there are many ongoing projects
(investments), inside and outside of the London. It can be forecasted that there will
be enough supply of Hotel rooms in the coming years as GOVT knows the growing
need of accommodation for visitors and it contribute major part in GDP. It can be
forecasted that there will be huge supply of Hotel rooms in future.

Diagram-VII Increase in the supply S

P D S1

E1

S D

S1

O A fall in demand Q

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http://www.guardian.co.uk/travel/2007/apr/23/travelnews Accessed on 8th-June-2009
http://news.bbc.co.uk/1/hi/uk/3638914.stm Accessed on 8th-June-2009

H-Fast Food Outlets in Emerging Markets

The fast-food/takeaway and home-delivery market in the UK reached a value of
£8.69bn in 2005, having grown by 3.7% over the previous year. If coffee shops are
included, the value of the market reaches £10.78bn, with sales growth of 4% recorded
in 2005.Despite the health concerns, fast food remains very popular, with more than
60% of adults visiting a major fast-food outlet in the past 6 months. However, the
health factor will impact on the future demand for fast foods, with sectors such as
sandwiches, chicken and pizza likely to be the fastest-growing areas of the market,
while sectors such as burgers and fish and chips will experience a slowdown in
growth.
Future growth in the industry will be relatively stable, with annual average growth of
less than 5% per annum in current prices predicted for the next 5 years. Even this
level of growth could be threatened if advertising bans are introduced to limit the
advertising of `junk food' to children at certain times or, in the worst case scenario, at
all times. On a more positive note, the growing use of the Internet and mobile
telephones to order delivered or takeaway food will aid the industry, helping to reduce
costs and possibly allowing outlet rationalisation in areas oversupplied with fast-food
shops. The food prices are always low, and they come under the budget of every
citizen, whenever there is more demand, there is always supply for that.
Factors responsible for increase in supply
From the estimated data of the past years, it can be predicted that there are enough
farms and land areas in Auk and outside so the resources like Vegetables and oil, and
other minerals are in sufficient quantity. And the supply of the fast food will rise due
to the increase in the number of population and resources and consumption.

Diagram-VIII rise in the supply

P D S S1

E1

S D

S1

O A rise in supply Q

http://news.bbc.co.uk/1/hi/health/2707143.stm Accessed on 14-

June-2009

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I-Credit Cards
Around 640 million credit cards are in circulation in the United States with about
$750 Billion and $800 Billion in credit card balances based upon Federal Reserve
figures. From 1996 to 2005, the total number of bank credit cards increased 46%.
(Card Industry Directory 2006)Credit card usage grows with 14% Americans holding
more than 10 cards per Experience. That’s around 1 in 7 Americans. This is up from
10% in 2004.
According to data from the U.S. Census Bureau, there were 159 million credit
cardholders in the United States in 2000, 173 million in 2006, and that number is
projected to grow to 181 million Americans by 2010. (Source: Census Bureau)The
top 10 U.S. credit card issuers held an 87.55 percent market share of $972.73 billion
in general purpose card out standings in 2008. That includes Visa, MasterCard,
American Express, and Discover and is up from 84.70% in 2007.
As of September 30, 2008, there were 339 million Visa credit cards and 314 million
Visa debit cards in circulation in the United States. And December 31, 2008, there
were 263 million MasterCard credit cards and 126 million MasterCard debit cards in
circulation in the United States.
Factors responsible for decrease in supply.
At the moment there is high demand but supply is not sufficient to meet the demand.
We can project that there will be low supply in the future because of insufficient
funds as many companies are struggling for there credits. Credit companies are still
offering credit cards but there criteria is very selective. The companies whose
business is to earn credit by lending money can not survive without issuing the credit
cards.
Diagram-IX- A fall in supply

P D S1 S

E1

S1 D

A fall in supply
Q

http://www.cardratings.com/creditcardstatistics.html Accessed on 7th June 2009

http://www.creditcards.com/credit-card-news/credit-card-industry-facts-personal-
debt-statistics-1276.php#ownership Accessed on 7th-June-2009

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J-Laptops Computers
For year 2008 it is estimated that 145.9 million notebooks were sold, and in 2009 the
number will grow to 177.7 million. For Microsoft Windows systems, the average
selling price (ASP) showed a decline in 2008/2009, possibly due to low-cost
notebooks, drawing $689 at U.S. retail in August 2008. In 2009, ASP had further
fallen to $602 by January and to $560 in February. While Windows machines fell
$129 in these seven months, The Information Network estimates that 11.4 million
notebooks were sold in 2008, up from 400,000 in 2007. For 2009, the firm estimates
that notebook sales will grow 189 percent to 21.5 million. Meanwhile, the firm
estimates that 145.9 million notebooks were sold in 2008 and projects that number
will grow 21.8 percent in 2009 to 177.7 million.
Factors responsible for increase in supply
There are number of supplier and buyers in the market and the growing demand of
this technology is increasing the supply of the Laptops, affordable prices and ease of
use is also increasing its importance.
Without notebooks, The Information Network argues, many notebook purchasers
would have bought notebooks. Acknowledging that the percentage was open to
debate, the firm assumed for the sake of argument that 50 percent of the purchases of
notebooks in 2008 and 2009 would have been notebook sales. This would equate to
5.7 million more notebooks sold in 2008 and 10.8 million more notebooks sold in
2009, the firm reasoned. Due to the customers preference there will be more demand
and supply for the laptops in the future, as compare to the substitute goods. And it can
be predicted that there will be excess supply for this product.

Diagram-X A rise in the supply

P D S1

E1

S D

S1

O A rise in supply Q

http://www.eetimes.com/news/latest/showArticle.jhtml;jsessionid=YN1M2POYEMEN
0QSNDLSCKHA?articleID=212701251 Accessed on 10th-June-2009

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References
1) Johnson, Peter and Thomas, Barry, (1992). Choice and demand in tourism.
London: Mansell.

2) Breadshaw, J. et.al (2001), Economics, A student guide. 5th edition, Prentice Hall.
London, UK. Pg 111-174

3) Parkin, Powell, Matthews, (2008), Economics. Seventh edition, Pearson education

ltd, UK. Pg- 49-110

4) www.McDonald.com, financial report for year end 2008, retrieved on 7-june-2009

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att/SonyAR08-08.pdf Retrieved on June-4th-2009

10) www.sony.net/SonyInfo/IR/library/semc/pdf/q109.pd Retrieved on June 4th 2009

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2009

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14) http://www.cardratings.com/creditcardstatistics.html Accessed on 7th June 2009

14
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6) Parkin, Powell, Matthews, (2008), Economics. Seventh edition, Pearson education

ltd, UK. Pg- 49-110

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15