Discuss about the Business Economics for Demand and Supply.
This study has demonstrated the concept of business economics. In this regard this study has tried to discuss the economic theory on demand and supply. This theory can effectively estimate the reason why the price of coal has been decreasing while coal in necessity for the industrial as well as domestic consumption. In this purpose, it can be mentioned that with the rise in the price of natural gas, the price of coal has been decreased (Augustovski et al. 2013). On the other hand, in this study, the effect of the economy by the fall in price of coal has been mentioned. In this context, the impact of the coal importing and exporting nations has been discussed after occurring of trade. This study has tried to aim to identify the reason for which the huge fall of coal price can reflect the winners as well as the losers at the business level.
As per the case study, it can be observed that the price of coal has been decreasing to half compared to the peak price of two years ago whereas coal is necessary goods for the industry and the domestic consumption. In the words of Beckmann, Hielscher and Pies (2014), the reason can be discussed as the price of the substitute goods such as the price of natural gas might be increased. As a result, it can be mentioned that with the decrease in the price of the coal, the demand for this products would effectively increase in the short run. On the other hand, Canto, Joines and Laffer (2014) mentioned that as in the competitive market structure, as the demand for the natural gas and the renewable resources is higher compared to coal, therefore, in order to acquire a greater market share, the production has decided to lower down the price of coal. As a result, the consumers were also willing to consumer the products in turn of lower price (Haley and Haley 2013).
Figure 1: Relationship between the price of coal and its demand
(Source: Created by author)
The above diagram is helpful to discuss the relationship between the price of coal and the demand for the product. In this connection, it can be observed that the horizontal axis implies the quantity of coal, which was produced. The vertical axis represented the price of the product. The above figure depicted that the demand curve is downward sloping and the supply of the product was remaining same (Deardorff 2014). This refers that with the rise in the price of coal, the quantity demanded by the consumers would be decreased. On the other hand, it can be observed that the initial price of coal was P1 and the corresponding demand for the good was Q1. After lowering down the price of coal, from price P1 to P2, the demand for the product has been increased from Q1 to Q2 (Canto, Joines and Laffer 2014). With the help of this concept of economic demand and supply, it can be observed that when the price of coal decreased, the demand for the product would be increased.
In the words of Francois et al. (2013), the decrease in coal price will reflect the country’s coal import as well as export. It can be observed that the rise in the price of natural gas reduces the price of the substitute goods such as coal. This decrease in price of coal has an adverse impact on the massive coal importing countries such as Japan or India. In this purpose, it can be mentioned that as Japan or India import coal from the higher coal exporting countries, therefore, it can be stated that the price of coal will be lower. As per the statement of Gillespie (2013), due to the fall in price of coal, after the imposition of tariff, the price will also be lower from the previous. The reason can be discussed that the rate of tariff was also previously imposed, and then the price of coal was higher (Beckmann, Hielscher and Pies 2014).
Figure 2: Effect in the coal importing nations
(Source: Created by author)
From the above figures, it can be observed that the X axis denotes the price level of coal and the Y axis denotes the quantity level. Demand curve is downward sloping and the supply curve is upward sloping. The first figure represented the higher price of coal in the market whereas the second figure tried to represent the effect of import after the reduction of coal price from P1 to P2 (Granger 2014). It can be clearly observed that with the decrease in price level, the countries import more from the previous. Previously, the quantity was increased by Q1 to Q2, whereas after the decrease in the price level, the quantity has been increased from Q3 to Q4. This amount is higher from the previous (Haley and Haley 2013).
With the decrease in the price of coal, the revenue of the coal production organisation of the exporting countries such as Australia or Indonesia has been decreased. Therefore, the exporting nations will incur loss. The producer surplus of the producers will be reduced (Haley and Haley 2013). On the other hand, it can be mentioned that with the increase in the level of export, there will be shortages in the quantity level of coal in the domestic market. As a result, it can be assumed that to maintain the equilibrium level, the price of coal in the domestic market may be increased.
In the words of Johnson (2014), it can be mentioned that the fall in the oil price increase the domestic consumption of coal in the country like USA and China. As a result, it can be mentioned that the amount of export will be decreased by the country.
As per the case study, this study has aimed to identify the businesses or industries, who will be benefitted after the fall of coal price. In this connection, it can be stated that the electricity production organisations will be highly beneficial. McCloskey (2013) opined that due to the reduction of the price of the intermediary good, the cost of the final good will also decreases. The price of the petroleum will also decrease. Moreover, it can be mentioned that refined coal is used for the production of different chemicals. These chemicals are such as creosote oil, phenol, naphthalene, benzene etc. Therefore, it can be stated that the organisations, which are associated with these production of the chemicals, will be significantly benefitted due to the lowering down the cost of the intermediary good.
According to Stanley and Doucouliagos (2012), the exporters of coal of a country will incur loss in terms of the dollar’s appreciation. In addition, the amount of the capital expenditures, which has been invested by the coal manufacturing company, has been decreased (Canto, Joines and Laffer 2014). Therefore, in this connection, it can be mentioned that after the fall in the price level of coal, the domestic exporters of the country will incur loss. As a result, the revenue of the producers has been decreased (Wagner 2012).
Conclusion
This study has highlighted the concept of business economics. In this connection, this study has demonstrated that the price of oil has been decreased. The reason can be identified as the price of the substitute goods has been increased in the market, therefore, to acquire a greater market share, the coal production companies have been reduced the price of the coal. On the other hand, this study has discussed the effect of the economy after the reduction of coal price. In this context, this study has tried to establish the effect of the importing countries such as Japan or India after import coal. Instead of this, the effect of the exporting nations such as Australia or Japan has mentioned after the coal export in this study. Moreover, this study has identified who will be benefitted and who will incur loss after reducing the price of coal.
This study has highlighted that the fall in the price of coal has increased the demand for coal. In this connection, it can be assumed that with the rise in the demand for the consumption of coal, there may arise the situation of shortages of supply. As a result, the price of coal can be increased in order to maintain the equilibrium. On the other hand, in case of the import of coal, it can be observed that the coal producers of the importing countries will suffer from loss due to the lowering the business. As a result, it can be recommended that the government of the country requires imposing quantitative restriction on the quantity of coal import. Therefore, the domestic coal producers will not be disheartened.
References
Augustovski, F., Rey-Ares, L., Irazola, V., Oppe, M. and Devlin, N.J., 2013. Lead versus lag-time trade-off variants: does it make any difference?. The European Journal of Health Economics, 14(1), pp.25-31.
Beckmann, M., Hielscher, S. and Pies, I., 2014. Commitment Strategies for Sustainability: How Business Firms Can Transform Tradeâ€ÂOffs Into Win–Win Outcomes. Business Strategy and the Environment, 23(1), pp.18-37.
Canto, V.A., Joines, D.H. and Laffer, A.B., 2014. Foundations of supply-side economics: Theory and evidence. Academic Press.
Deardorff, A.V., 2014. Terms of trade: glossary of international economics. World Scientific.
Francois, J., Manchin, M., Norberg, H., Pindyuk, O. and Tomberger, P., 2013. Reducing transatlantic barriers to trade and investment: An economic assessment (No. 20130401). Institue for International and Development Economics.
Gillespie, A., 2013. Business economics. Oxford University Press.
Granger, C.W.J., 2014. Forecasting in business and economics. Academic Press.
Haley, U.C. and Haley, G.T., 2013. Subsidies to Chinese Industry: State Capitalism, Business Strategy, and Trade Policy. Oxford University Press.
Johnson, R.C., 2014. Trade in intermediate inputs and business cycle comovement. American Economic Journal: Macroeconomics, 6(4), pp.39-83.
McCloskey, D.N., 2013. Enterprise and Trade in Victorian Britain: Essays in Historical Economics. Routledge.
Stanley, T.D. and Doucouliagos, H., 2012. Meta-regression analysis in economics and business (Vol. 5). Routledge.
Wagner, J., 2012. International trade and firm performance: a survey of empirical studies since 2006. Review of World Economics, 148(2), pp.235-267.
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download
