PAPER

DEMAND, SUPPLY, AND PRICE

Supporting Lecturer : Rosdiana Mata, SS.,M.Pd

Members Of The Group :
1. Elisabeth Bunga Tukan
2. Fransiska Liska Bhanda Kiuk
3. Karliana Mila Ate
4. Maria Nathalia Y W Kadu
5. Ridwan Puay
6. Verdiana Ese Tupen

ENGLISH FOR ACCOUNTING

POLITEKNIK NEGERI KUPANG
2022
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 PREFACE

We thank God Almighty for saying that this report can be resolved properly. We would like to
thank the lecturer of the English for accounting course, Mrs. Rosdiana Mata, SS., M.Pd, for providing
guidance to us on how to prepare this report. The paper we made is titled "Demand, Supply, and
Price". The purpose and purpose of compiling this report is so that readers can deepen their
knowledge of accounting. With a sense of fortitude, this task can finally be completed in a timely
manner. This assignment should be useful to students or the general public, especially ourselves and
all who have read this report, and hopefully this report can deepen the knowledge of the wider to
the reader.
As for the afterword from us as writers, we hope that this task can be useful to readers. And
there may be many errors or flaws in this report, therefore constructive criticisms and suggestions
are highly desired for the completeness of this paper.

Kupang, 2022

Writer

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TABEL OF CONTENS
PREFACE 2
TABEL OF CONTENS 3
CHAPTER I 4
INTRODUCTION 4
1.1 BACKGROUND OF THE PAPER 4
1.2 PROBLEMS FORMULATION 4
1.3 PURPOSE OF THE PAPER 5
CHAPTER II 6

2.1 THEORY 6

2.1.1 DEFINITION OF DEMAND, SUPPLY AND PRICE 6

2.1.2 THE FACTORS AFFECTING DEMAND SUPPLY AND PRICE 9
2.1.3THE LAW OF DEMAND AND SUPPLY IN ECONOMIC 11
2.2 DISCUSION 12

2.2.1 INTERACTIONS OCCUR BETWEEN DEMAND, SUPPLY, AND PRICE 12

2.3 CASE 14

2.3.1 CHANGES OCCURRED IN THE DEMAND FOR SUPPLY AND PRICES DURING THE ONSET OF
COVID 19 14

2.3.2THE BEST SOLUTION TO DEAL WITH CHANGES IN DEMAND, SUPPLY AND PRICES IN THE TIME
OF COVID 15

CHAPTER III 16

CONCLUTION 16

REFERENCES 17

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 CHAPTER I
INTRODUCTION
1.1 Background Of The Paper

This paper emerged as an attempt to use system dynamics to model supply and demand.
Classical economics presents a relatively static model of the interactions among price, supply
and demand. The supply and demand curves which are used in most economics textbooks show
the dependence of supply and demand on price, but do not provide adequate information on
how equilibrium is reached, or the time scale involved. Classical economics has been unable to
simplify the explanation of the dynamics involved. Additionally, the effects of excess or
inadequate inventory are often not discussed.
In the real world, the market price is affected by the inventory of goods held by the
manufacturers rather than the rate at which manufacturers are supplying goods. If the
manufacturers are supplying goods at a rate equal to the consumer demand, the static classical
theory would propose that the market is in equilibrium. However, what if there is a tremendous
surplus in the store supply rooms? The manufacturers will lower the price and/or decrease
production to return inventory to a desired level.
This paper introduces a model that incorporates elements from classical economics as well
as several real-world assumptions. This model will be used to examine some of the interactions
among supply, demand and price.
As the Covid-19 pandemic is disrupting economies across the globe, policymakers are in
search for suitable stabilization policy measures. The scope and design of effective policy hinges
on the channels through which the pandemic affects economic activity. On the one hand,
policymakers must consider measures that shield productive capacity going forward to weather
disruptions in the supply of goods and services. On the other hand, policymakers must consider
demand stimulus measures to address potential demand shortages.
The main result is that supply and demand forces coexist, but demand shortages dominate
in the short run. In a regression of planned price changes on the reported impact of Covid-19 on
current business, we estimate that a strongly negative impact is associated with a substantial
rise of up to eleven percentage points in the probability to decrease prices, net of a rich set of
controls.

1.2 Problems Formulation

1. what is the meaning of demand, supply, and price?

2. What is the factors affecting demand supply, and price
3. what interactions occur between demand, supply, and price?
4. what changes occurred in the demand for supply and prices during the onset of
covid 19?
5. what is the best solution to deal with changes in demand, supply and prices in the
time of covid 19?

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1.3 Purpose Of The Paper

1. To find out the meaning of demand, suplly, and price

2. To find out the interaction occur between demand, supply, and price
3. To find out the factors affecting demand, supply and price.
4. To find out the change occured in the demand for supply and prices during the onset of
covid 19
5. To find out the best solution to deal with changes in demand, supply and prices in the time
of covid 19

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 CHAPTER II

THEORY AND DISCUSION

2.1 THEORY
2.1.1 Definition Of Demand Supply And Price
A. Demand
Demand is the rate at which consumers want to buy a product. Economic theory holds that
demand consists of two factors: taste and ability to buy. Taste, which is the desire for a good,
determines the willingness to buy the good at a specific price. Ability to buy means that to buy a
good at specific price, an individual must possess sufficient wealth or income.

Both factors of demand depend on the market price. When the market price for a product is
high, the demand will be low. When price is low, demand is high. At very low prices, many
consumers will be able to purchase a product. However, people usually want only so much of a
good. Acquiring additional increments of a good or service in some time period will yield less and
less satisfaction. As a result, the demand for a product at low prices is limited by taste and is not
infinite even when the price equals zero. As the price increases, the same amount of money will
purchase fewer products. When the price for a product is very high, the demand will decrease
because, while consumers may wish to purchase a product very much, they are limited by their
ability to buy. (GS Becker, G Michael, RT Michael – 2017)

B. Supply
Willingness and ability to supply goods determine the seller’s actions. At higher prices, more
of the commodity will be available to the buyers. This is because the suppliers will be able to
maintain a profit despite the higher costs of production that may result from short-term expansion
of their capacity?.

In a real market, when the inventory is less than the desired inventory,
manufacturers will raise both the supply of their product and its price. The short-term increase in
supply causes manufacturing costs to rise, leading to a further increase in price. The price change in
turn increases the desired rate of production. A similar effect occurs if inventory is too high. (GS
Becker, G Michael, RT Michael – 2017)

C. Price
There are several methods that can be used as designs and variations, in the assignment of

price according to Marras (1999: 181-185), the price can be determined or calculated :

1)The price is based on the total cost plus the desired profit

2) Prices that are based on the balance between demand and supply.

3) Market pricing set on the basis of market forces.

4) Prices are based on a balance between supply and demand.

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 5) Pricing on the basis of market forces.

And Other Methods :

1.Cost Based Price

This first method is the easiest method to use. You do this by calculating the total costs of
fixed costs, variable costs, and semivariable costs. Determination of the selling price is simply by
adding the total cost with the desired margin. The following costs make up the total cost:

- Fixed Cost

These costs are costs that are always covered even if no sales occur, for example:

a. Equipment costs.

b. Rental costs.

c. Taxes.

d. Insurance.

e. Employee salaries.

f. Advertising costs.

- Variable Costs

The overall increased cost corresponds to the increased quality of sales.

-Semivariable Costs

These costs are a combination of fixed costs and variable costs. For example, in the lodging
business or renting a boarding room, if the room does not have tenants then there is some
maintenance that must still be issued and in some classes the room can be quite high in size.

2.Demand Based Price

Demand based price is simply a price set based on demand. We can use a function like this:

Q = 4000 – 40 P

Information:

Q = Quantity expected to be sold

P = Specific price level

From the equation above, it can be known that there will be no products sold if the set price is Rp.
100 or more and if the price set is Rp. 0, the demand will reach 4000 units (in fact it can be more
than 4000). It can be used for on-demand pricing.

3.Competition Based Price

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 This method does not pay much attention to demand and cost, the important thing is that
the price becomes competitive with competitors. In SMEs, this method requires considerable funds
to compete with the market. If you get it wrong, just a little bit can cause your business to close
because it can't cover the costs created.

4.Mark up Price

Pricing using this method is to add a mark up to cover existing costs and desired profits. The
formula:

Selling price = Product cost + mark up = Product cost + ( % x product cost) One of the reasons for
using mark up pricing is to reduce uncertainty on the cost of demand, by basing on the cost :

a.Pricing has become simpler and sellers do not need to make adjustments to demand.

b.Flexibility lies in its ability to support actions to maximize profits.

5.Break Even Price

In the break even price method we can find out how many products must be sold in order to
be able to return the funds used for investment in the product. This method has two stages, namely:

a. Examining the acceptance-cost relationship.

b. Enter the actual sales forecast into a specific analysis.

We can use the following formula to find out the break event point of the product we are
going to sell.

BEP (RP) = BTT1-BVP Or BEP (Unit) = BTTH-BVR

Information:

BEP : Break even point

BTT : Total fixed costs

BV: Variable costs

Q: Sales

H: Selling price per unit

BVR: Average variable cost

In this method, you should pay attention to the problem of lack of demand, because with regard to
price, the optimal price is greatly influenced by the relationship between the retail selling price and
the number of products that the consumer will purchase.

By combining the price and volume break even the most profitable taking into account the
following factors:

a. Competitor factors.

b. Experience in pricing.

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c. The condition of the products offered.

6.Rate of Return Price

This method is widely favored by business owners, this method prioritizes the return on
capital. To carry out the procedure, what must be considered are the following factors:

a.Demand estimates.

b.Use of facilities.

In this method we must be able to find out the grand total investment. After that we do the
calculation of depreciation. The depreciation formula is as follows :

Depreciation : Total fixed assets x 50% per annum

After we see the investment value, determine the sales target per year. We can calculate the
profitability Index (PI) with the following formula:

PI : Net cash receipts/investments

If the result is more than one then the investment is still profitable.

2.1.2 Factors Affecting Demand, Supply And Price

A. Price of goods

The first factor influencing demand and supply is the price of products, either goods or services
offered by producers to consumers. Generally, consumers will prefer to make purchases for products
at relatively cheaper prices. That way, consumers will get a greater profit when the product is resold.
At a time when the price of goods increases due to inflation, then consumer demand will fall, while
the supply made by producers will increase. Conversely, when the price of the product falls, the
demand for the goods will increase, while the supply will fall.

B. The price of the substitution item

In addition to the price of the product itself, the price of the substitution product will also affect the
demand made by consumers. This substitution item is a substitute for the main item. For example,
rice is replaced with corn or potatoes. If the price of the substitution product decreases, then the
demand for the main goods will decrease, while the supply will increase. While if the price of this
substitution item increases, then by itself the demand for the main goods will increase, while the
supply will fall. The nature of the relationship is positive or directly proportional.

C. Prices of complementary goods

Complementary goods are complementary items for the main goods so that they can function
optimally. For example, gas for gas stoves, gasoline for motor vehicles, or ink for pens. If the price of
complementary goods increases, then the demand for the main goods or equipped goods will
decrease, while the supply will increase. Conversely, if the commodity goods decrease, the demand
for the main goods will increase, besides that the supply will increase.

D. Income level

The next factor affecting demand is the level of income of consumers. The level of consumer income
will indicate the magnitude of the purchasing power of consumers. This is because consumers must
be able to adjust their financial condition. The higher the level of consumer income, the more the

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demand for an item will increase. On the contrary, the demand for a good will decrease when the
level of consumer income is low.

E. Consumer tastes

The next factor that affects consumer demand and supply is consumer tastes. This factor is closely
related to the emerging trends within society. In general, there are several brands or products that
are trending or booming so that consumer tastes will be influenced by these goods. If consumer
appetite for a good or service increases, then demand will naturally increase, while the supply made
by producers or sellers decreases. And vice versa.

F. The intensity of consumer needs

The demand curve for a product is also influenced by the intensity of consumer needs. This one
factor is influenced by the urgency or not of consumer needs for a product in the form of goods and
services. This means, it has to do with the time of use that is very urgent or not. The demand for
products will rise at a time when the intensity of the need for a product is very urgent, while at that
time the supply will fall. However, when the intensity of the need for an item is not urgent, the
supply will increase, while the demand will decrease.

G. Estimated price

The factor that affects the next demand and supply is the forecast or estimated price of a product in
the future. Estimation is carried out to estimate whether the price of the product will increase or
decrease in the future, this can be calculated by various factors. If you predict that the price of the
product will increase, then it is recommended to buy the product right now, this will result in the
demand for the product increasing in order to save finances in the future. On the contrary, when you
expect the price of goods in the future to decrease, it would be better if you postpone the purchase
of the goods, at this time the demand falls.

H. Population

The number of inhabitants in a region or region also affects the demand and supply of a product.
The larger the population, the more it will increase the target consumers and also the market
segmentation of products, both goods and services sold. When the number of inhabitants in a large
region, then the demand for a product will increase. Meanwhile, if the number of occupations of a
country or region is low, then consumer demand for sautu products will also decrease.( WG Bowen,
JA Sosa – 2014)

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2.2.3 The Law of Demand and Supply In Economics
A. Law of demand

In full the law of demand states that "if the price of a person goes up, then the quantity of goods
requested will decrease, on the contrary if an item goes down then the quantity of an item then the
quantity of goods requested will increase." the law of such demand will applywith the assumption
that other factors beyond the price should be considered constant(caterisparibus). This is the
original concept of the inventor, Alfred Marshall.

Cateris paribus is a Latin expression that means all variables other thanthat being studied are
assumed to be constant. Literally, cateris paribus means " other things are considered the same."

In the law of demand the quantity of an item will be inversely pricedwith the level of the price of the
goods. The increase in the price of goods will cause a decrease in the number of goods requested.
This is because the attractiveness to buy is decreasing which is caused by the high price of selling the
goods.

Other factors that do not change include tasteful income, price, substitution goods or
complementary goods, population. The law of demand does not apply to certain goods, namely
inferior goods, pratise goods, speculated goods. An example of the current law of demand is :

When the price of soybeans is increasing. Tempeh and tofu entrepreneurs tend to use
soybeans that are of a lower type, and there are even entrepreneurs who go out of business
because they are unable to buy raw materials for making tempeh and tofu.

B. Law of bidding

As the original concept of Alfred Marshall, then the exact comparison between price to offer is
referred to as the law of biddingwhich can be interpreted as follows:

A straight comparison between the price and the quantity of goods offered is " if the price
increases then the supply will increase, and in contrast if the price falls, the supply will also
fall assuming the paribusceteris (Ahman,2009:2012),

Here is an example of the legal offer

1. If the price of shallots rises. Eating producers will increase the amount of shallot production
offered in order to get a greater profit

2. After the feast day. Public interest in syrup decreasesso that producers will reduce the intent of
the offer so that it does not suffer losses.

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2.2 DISCUSION
2.2.1 Interactions Occur Between Demand, Supply, And Price
Demand is defined as the quantity (or amount) of a good or service people are willing and
able to buy at different prices, while supply is defined as how much of a good or service is offered at
each price. How do they interact to control the market?

Buyers and sellers react in opposite ways to a change in price. When price increases, the
willingness and ability of sellers to offer goods will increase, while the willingness and ability of
buyers to purchase goods will decrease.

Price affects supply and demand. When price is high, demand is low and supply is high.
When price is low, demand is high and supply is low. We assumed that the only direct action by a
manufacturer to bring inventory to the desired level is to vary price. When inventory is below the
desired inventory, then the inventory ratio is less than one gives a value for effect on price that is
greater than one. This causes the price to increase. The increase in price causes the supply to
increase and the demand to decrease through their respective price schedules and brings the
inventory closer the desired value. Multiplying the output of the effect on price converter and actual
price returns desired price.

Price was modeled as a stock because prices cannot change instantaneously. People do not
have immediate and exact information on the supply (inventory) and demand of the commodity in
question. Additionally, when the information becomes available, it takes time to make a decision
about changing the price.

Example:

Table 1 is called a schedule of demand and supply. For each price, it indicates how much
clothing is demanded by the consumers per week, and how much clothing is supplied per week.
Notice that as price decreases, demand increases and supply decreases. Eventually demand exceeds
supply.

Table 1: Demand and Supply Schedules

For each price, the schedule above indicates the quantity (in articles per week) of clothing demanded and
supplied.

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 The market will reach equilibrium when the quantity demanded and the quantity supplied
are equal. At $15, supply and demand are equal at 57 articles of clothing per week. To better
understand the dynamics involved, suppose that one article of clothing was selling for $30.
Producers would be willing to supply 84 articles of clothing per week, but consumers would only be
buying 28 articles per week. As a result, the producers would have excess inventory piling up very
quickly. In order to get their inventory back to the desired level, the suppliers would have to
decrease production and reduce the price. Eventually, the quantity demanded and quantity supplied
meet at 57 articles per week at a price of $15

Quantity of Clothing per week

Figure 3: Demand and Supply Curves

These curves were plotted from the data for the clothing market included in Table 1.

Figure 3 plots the demand and supply curves from the data in Table 1. Notice that at $15 the
supply and demand curves meet.(  T Schoenherr… - International Journal of …, 2013)

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2.3 CASE
2.3.1 Case 1
A. changes occurred in the demand for supply and prices during the onset of
covid19
Firms strongly affected by Covid-19, both negatively and positively, change their prices more
frequently than mildly affected firms. The frequency of price increases rises with Covid-19 impact,
while the frequency of price decreases falls. To summarize, there is large heterogeneity in firms’
price-setting behavior that correlates with Covid-19 impact. Positively affected firms tend to increase
their prices, while negatively affected firms tend to decrease their prices. These patterns are
consistent with the notion that demand deficiencies dominate the adverse impact of Covid-19. The
fact that there are many more firms for which Covid-19 impact is negative suggests that downward
price movements prevail at the aggregate level.

(Strongly) negative Covid-19 impact is associated with higher probability of planned price
decreases across all sectors. The effects are slightly weaker in manufacturing, possibly reflecting the
presence of long-term contracts between buyers and suppliers. Positive Covid-19 impact does not
display any significant differences in planned price adjustments in services, presumably because of
only very few. Positively affected firms plan fewer price decreases in the manufacturing industry
while they plan to increase their prices in the retail/wholesale sector.

In negative Covid-19 impact categories, we expect prices to increase (or decrease less
strongly) if supply-side forces are strong. Conversely, we expect prices to decrease in particular if
demand-side effects are important. In positive categories, we expect prices to increase with higher
chances in the presence of excess demand.

Taken together, these results highlight the importance of weak demand during the Covid-19
pandemic. Otherwise, a reduction in supply would reverse the observed price-setting behavior, with
higher probability of price increases associated with negative Covid-19 impact. This finding is in line
with other articles that emphasize differential effects of economic shocks on demand during the
Covid-19 crisis. First, higher economic uncertainty might adversely affect the demand for durables
relative to non-durables. Second, demand deficiencies are expected to be large in firms particularly
exposed through their position in the input-output network. Third, demand deficiencies are larger
for goods that are mostly complements to other goods and services. Finally, Covid-19 itself may
reduce the demand for certain goods for which consumption is associated with health risks . ( AM
Santacreu… - FRB St. Louis Working …, 2022 )

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 B.The Best Solution To Deal With Changes In Demand, Supply and Prices In The Time
Of Covid 19
Pandemics, economic downturns, and financial crises are mutually dependent. And the deeper
and loger these crises are, the more pernicious their combined impact. This means that they need to
be mitigated at the same time:

1. Flattening the pandemic curve is important because it saves lives by avoiding bottlenecks in
the health system when larger numbers of sick exceed the health system’s capacity.

2. To the greatest extent feasible which will be different across economies deep and prolonged
recessions must be avoided, for these can cause lasting damage. Long periods of weak
supply and demand can lead to elevated structural unemployment, permanently lower
capital stock, and contained “animal spirits.” Flattening the recession curve is therefore
important.

3. Finally, during episodes of deep financial and corporate distress, even productive banks and
firms can experience widespread failures. The fiscal cost of bailing out banks and firms can
become prohibitive, forcing governments to then cut back on other productive spending.
This argues for the need to flatten the financial distress curve at the same time.

Simultaneous action on all these fronts requires greater resources medical, fiscal, financial, and
monetary. It also puts a premium on efficiency. In other words, developing countries need a strategy
to leverage both public and private resources in a hurry. At the World Bank, we have been working
on a framework that their governments could use to devise strategies tailored to their circumstances
health-sector capacity, fiscal space, financial sector development, and monetary headroom .

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 CHAPTER III
CONCLUSION
CONCLUSION
This definition of demand is based on the assumption that, all other factors that affects
demand remains constant when we consider the effect of price on the demand for any good or
service. To put it more simply, we know that demand is affected by a number of factors like price of
the product, the income of the individual, the price of other related products, the consumer’s tastes
and preferences, and even government policies. Supply, in economic terms, is defined as the
quantity of a good or service that the sellers are willing to sell at different prices of the commodity
provided that the other factors affecting supply remains unchanged. Price affects supply and
demand. When price is high, demand is low and supply is high. When price is low, demand is high
and supply is low. Price was modeled as a stock because prices cannot change instantaneously.
People do not have immediate and exact information on the supply (inventory) and demand of the
commodity in question.

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 REFRENCES
Becker, Gary S., Grossman Michael, and Robert T. Michael. Economic theory. Routledge, 2017.
de Soyres, François, Ana Maria Santacreu, and Henry L. Young. "Demand-Supply imbalance during
the Covid-19 pandemic: the role of fiscal policy." FRB St. Louis Working Paper 2022-19 (2022).

Blome, Constantin, Tobias Schoenherr, and Daniel Rexhausen. "Antecedents and enablers of supply
chain agility and its effect on performance: a dynamic capabilities perspective." International Journal
of Production Research 51.4 (2013): 1295-1318.

Kienzler, Mario, and Christian Kowalkowski. "Pricing strategy: A review of 22 years of marketing
research." Journal of Business Research 78 (2017): 101-110.

Yan, Xing, et al. "A review on price-driven residential demand response." Renewable and Sustainable
Energy Reviews 96 (2018): 411-419.

Huang, Wujing, et al. "From demand response to integrated demand response: Review and prospect
of research and application." Protection and Control of Modern Power Systems 4.1 (2019): 1-13.

Gelsomino, Luca Mattia, et al. "Supply chain finance: a literature review." International Journal of
Physical Distribution & Logistics Management (2016).

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