MISMATCH BETWEEN DEMAND AND SUPPLY OF PRODUCTS Product chosen: WHEAT ( U.S.

Department of Agriculture ) Demand schedule: PRICE (P) Farm price per bushel ($) 3 4 5 Supply schedule: PRICE (P) Farm price per bushel ($) 3 4 5 QUANTITY DEMANDED (Qs) Quantity of wheat supplied per year (millions of bushels) 1600 1900 2200 QUANTITY DEMANDED (QD) Quantity of wheat demanded per year (millions of bushels) 1850 1650 1500

From the given demand and supply schedule we are able to see that there exists no price where the quantity demanded equates quantity supplied. PRICE (P) Farm price per bushel ($) 3 4 5 QUANTITY DEMANDED (QD) Quantity of wheat demanded per year (millions of bushels) 1850 1650 1500 QUANTITY DEMANDED (Qs) Quantity of wheat supplied per year (millions of bushels) 1600 1900 2200 EXCESS DEMAND/ SUPPLY 250 QD>QS 250 QD<QS 700 QD<QS

Price is not the only factor that influences quantity demanded. Additional determinants of consumers' buying plans include: 1. Change in Income 2. The prices of related commodities 3. The number of consumers in the market 4. The preferences of consumers 5. Expectations about future prices. As was the case with demand, so too with supply we find that price is not the only factor that influences the quantity supplied. Additional determinants of suppliers' plans include:

1. The costs of factors of production 2. The prices of related outputs 3. Change in Technology 4. Expected future prices 5. The number of suppliers Changes in any of these five factors will result in a shift in the supply curve. Now, as we know that in case of a mismatch there would either be a situation of excess demand or excess supply. So, the equilibrium will not be attained and this will result in an inefficient distribution. The main approach in this regard is how to control such a situation. This can be done in 2 ways. These are as follows: IF THERE IS EXCESS DEMAND: From the above schedule there exists an excess demand situation at price = 3$. So, there will be a competition among buyers as supplies are scarce of wheat will encourage sellers to raise prices due to which supply increases and eventually the product will be in equilibrium.

IF THERE IS EXCESS SUPPLY: From the above schedule there exists an excess supply situation at price = 4$ & 5$. So, farmers selling wheat would not be able to sell all of their wheat as demand is less and wheat inventories would begin to build up. In order to get rid of such unwanted stocks, sellers would begin to offer their wheat at lower prices i.e. price will reduce and demand will increase.

THE ABOVE 2 APPROACHES ARE CALLED MEASURES TOCONTROL PRICE MACHENISM AND THESE WILL CONTINUE UPTILL EQUILIBRIUM IS ACHIEVED. FINALLY, AFTER CALCULATION WE CAN QUOTE THAT: EQUILIBRIUM PRICE = 3.5 $ QUANTITY DEMANDED = 1750 QUANTITY SUPPLIED = 1750 SO, MISMATCH BETWEEN DEMAND AND SUPPLY IS RECTIFIED.

SOURCE: PENNSTATE DEPARTMENT OF ECONOMICS URL: HTTP://WWW.ECON.PSU.EDU/