# 1.4 Price-fixing through supply and demand

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## Price-fixing through supply and demand

In order to make bartering and business transactions possible, it is necessary that the value of a product be expressed by the dealer in terms of a monetary amount, or as we know it, a price. It is common for us to walk into a shop and compare the prices of products on the shelves in order to decide which product(s) we want to buy. However, the question is: How are these prices determined?

The price that is given to a product by a dealer depends on (1) the price that he paid for the product and (2) the price at which he is prepared to sell the product. This raises the principle of DEMAND for a product or products at a specific price, in a specific quantity or number (of the product) and at a specific time. As a simple example one can refer to the municipal fresh produce market or an auction where livestock is sold. Note that at such markets the sellers and the prices that they ask for their products, as well as the number of products available, can differ from day to day.

The following data are given concerning the SUPPLY of cabbages on the municipal fresh produce market:

 PRICE PER CABBAGE NUMBER SUPPLIED R0.80 400 R0.70 350 R0.60 300 R0.50 200 R0.40 100

## Activity 1: supply curve

Make use of the data supplied in the table above and draw the supply curve. Insert it on a separate page.

From this the LAW OF SUPPLY can be deduced, which states that “the number / quantity of goods that are offered will rise in proportion to rises, in the price and vice versa, namely that the number / quantity supplied will fall when the price shows a decline”.

## Activity 2: supply

Draw up a list of the factors that will influence the number / quantity supplied.

 1…………………………………………………… 6………………………………………………….. 2. 7. 3. 8. 4. 9. 5.

The price that a consumer is willing to pay for a product depends mainly on (1) how urgent his need is and (2) the amount of money that the consumer has available. Here we have to do with the DEMAND for a product or products that is / are valid at a specific price, in specific numbers / quantity and at a specific time. Once again it is possible that the indicated prices and numbers / amounts may differ from day to day.

The following data concerning the DEMAND for cabbage on the municipal fresh produce market on 14 January are also supplied:

 PRICE PER CABBAGE NUMBER SUPPLIED R0.80 150 R0.70 200 R0.60 300 R0.50 450 R0.40 650

## Activity 3: demand curve

Make use of the data supplied in the table above and draw the demand curve. Insert it on a separate page.

From this the LAW OF DEMAND can be deduced, which states that “the number / quantity demanded will rise in proportion to the decline in price, and vice versa, namely that the number / quantity demanded will fall when the price shows an inclination to rise”.

Draw up a list of the factors that will influence the number / quantity demanded.

 1…………………………………………………………… 6………………………………………………… 2. 7. 3. 8. 4. 9. 5.

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