We are driven to buy and sell goods and services in the market with two simple facts. First, most of us are incapable of producing everything we want to consume. Second, even if we could produce all our own goods and services, it would still make sense to specialize, producing only one product and trading it for other desired goods and services. • Briefly explain by means of a graph how an equilibrium price is set in the supply and demand market. • Briefly explain how a reduction in oil production will affe

Answer:

Introduction of Managerial economics

            Supply and demand are the basic factors of the economy because it co troll the production and market conditions according to its utilization. Supply means how much the specific product, service or commodity provides in the market at specific price. Demand means that how much the commodity or product or service required and can be used at specific price. Supply offers a limited amount of resources to market-related to product, and demand explains the desire of the customers related to market. For setting the price of a product the supply and demand play a major role in developing the economy market. A balanced combination for allocation of resources and at that point the determine price is called equilibrium price. In other words, the equilibrium price is the stage at which the demand quantity equals supply quantity, but the quantity and also equilibrium price also change according to market condition. Suppliers want to determine the actual demand of the customers and try to supply such products that can fulfill the requirements of the customers, and a balance condition can be developed in the market where the supply product may sufficient for the demand of the customers related to product. (Nash, 2019)

The demand and supply curves are the basic representation of the supply and demand conditions in the market, and it also helps to explain that what condition happen related to market when the supply increase or decrease and same case happen with demand. When the equilibrium price is high then it means that its demand also increases and when the demand is going to decrease than its equilibrium price also decreases and in case of supply when the supply increase then a fall appear in the equilibrium price and when the supply decrease then a rise appear in the equilibrium price. The demand curve is the graphical representation of demand and price, where the vertical axis explains the price and horizontal axis explain quantity. The supply curve also explains link between the quantity supplied and price of the product on graph where vertical axis show price and horizontal axis show quantity supplied. (myaccountingcourse.com, 2019)

Graphs:

Figure 1 Shows equilibrium price for Gasoline

In the given examples, the gasoline price per gallon and its quantity per million are determine, and this graph also shows that at what point the equilibrium price is determined. The above table explains the law of equilibrium that when the price increases the demand is going to decrease, and supply is also increasing with the price. And the equilibrium price is the point where the demand and supply are same, and they are paying the same amount for the product. So in the market of gasoline, the gas is available at 1.40 where the market demand and supply meet at the same position, and that price is beneficial for the buyers. (opentextbc.ca, 2019)

Simply, the reduction in oil production may decrease the supply of the oil, and it never meets the target that demand offer in the market, according to consumptions. There are general examples that explain the supply curve and demand curve.

Figure 2 shows Demand Curve example

Figure 3 shows change in Supply Curve with change in price and quantity supplied.

In these two graphs, it is simply explained when the supply increases, its prices automatically increase, and a major shift can be seen in the graph related to supply curve. When the demand is going to increase then the price is decrease, and a major shift appears in the demand curve. According to given scenario, when production is reduced related to oil then its supply in the market is also minimized, and it will never meet the target of demand by the customers . Due to low supply, the demand for the oil production increase and its price also increase because its usage never minimizes among the customers. It also explains in the given graph as:

Figure 4 shows equilibrium price graph with supply and demand curves  

Discussion of Managerial economics

            The first graph related to the point of equilibrium explains that the supply and demand curve meet at some specific point to determine the equilibrium price. The equilibrium price is the price set by the market after measurements, and at this point the supply and demand of the products are same and same benefits provided to suppliers and customers. In graph 2 and 3 the demand and supply curve is going to explain which means that when the price increase the demand of the product also increase and when the supply decrease then the price increases so, in other words, the demand and price has direct relation and supply and price has inverse relation with each other. This graphical representation helps to explain the market trends and also provide clear understanding of the product and its demand and supply in the market. Because the supplier is the major responsibility to produce the product and supply them into the market that can fulfill the demand of the customers and the settlement of price is also occur according to the market condition and its trends. These representations are very helpful in explaining the market trends and also give a clear picture of the supply and demand of the product. And the 4^th graph explains that what is the condition of the market when its production is minimized and what effect show on demand and supply of that product and what effect appear on the price that maintains the level of market and its supply to the customers. So these graphs help to explain that numerical terms in proper manner also helps to provide better understanding for all those who are not aware of the basic terminologies and help to explain all the facts and figures in better way.

Conclusion of Managerial economics

            At the end of the discussion , we can conclude that supply and demand are the main elements of the market because they set the economy at national and international levels and also set the standards of the market according to its conditions and economic conditions. There are many issues arise during the implementation of demand and supply standards, but for steady market flow the proper strategies related to supply and demand must be adopted in the market. Law of demand and law of supply are the basic elements that support the market conditions and also help to obtain the actual profit for the suppliers and different businesses. Supply and demand are the basic pat of the market and without them no any market can operate its functions because the graphical representation help to explain the working at every point and also show in one time that what area is strong and what area is weak and how to improve that area according to new market conditions and trends. The demand and supply of the products may change according to different factors but their relationship still exists in the market because when any new product entry in the market then its demand and supply series is started, and people may start using that product, and for the next time their demand can be presented through their behavior and their increased demand.

Reference of Managerial economics

Myaccountingcourse.com. (2019). What are Supply and Demand? Retrieved from                                     https://www.myaccountingcourse.com/accounting-dictionary/supply-and-demand

Nash, J. (2019). How Changes in Supply and Demand Affect Market Equilibrium Video.                           Retrieved from https://study.com/academy/lesson/how-changes-in-supply-and-                   demand-affect-market-equilibrium.html

Opentextbc.ca. (2019). Demand, Supply, and Equilibrium in Markets for Goods and Services.                  Retrieved from https://opentextbc.ca/principlesofeconomics/chapter/3-1-demand-supply    -and-equilibrium-in-markets-for-goods-and-services/#CNX_Econ_C03_003