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Supply and demand #finance

It is important to understand supply and demand; it is a key economic indicator. If demand for something goes up then that is an upward pressure on the price of that commodity. I have known bread shortages and prices increase. Is it profiteering? In a way, yes, but it also has a tendency to ration the available supply. Demand can be boosted by factors that aren’t immediately obvious. If Mr Kipling cakes are promoted on social media then people are likely to buy more. Social media can influence demand. Rumour can also influence supply and demand. Just a rumour of a shortage of bread can have people queuing at the shops and bakeries might increase supply to cope with the increased demand.

supply and demand

Solo Oil

The share price of Solo Oil has improved a little in the past few days based on rumour. News of their discoveries both in the UK and Tanzania is thought to be imminent and so rumours on the forums are encouraging buyers. Supply and demand can influence share prices. New issues (increased supply) can mean a lower share price and good news or even a rumour of impending good news can mean a higher share price. Even something as simple as a reassuring statement by the company can stabilise demand for shares.

Buy it now

Many people get an emotional boost from buying new things. They can’t wait, they have to have their new purchase as soon as possible. This phenomenon drives the credit industry. People will pay 16% or more interest on their credit cards while getting less than 1% on their meagre savings because of this phenomenon.

The money supply

The money supply is also a contributor to supply and demand in the economy. A big increase in the money supply and demand increases and then there is pressure to increase prices and we get inflation. When this happens, debts aren’t inflated. If you owe a small fortune on your mortgage and inflation is high, your interest payments and so your mortgage payments will increase but the debt effectively gets inflated away. Government debt can be inflated away too. Government debt at the moment is high and so they don’t want higher interest rates but they do want higher inflation and that is precisely what we are seeing. It is a great trick if they can engineer higher inflation without wages increasing!

Marketing

When companies have cash flow problems, they tend to cut marketing and advertising. Marketing and advertising tend to take advantage of emotional needs to buy it now or some other need we have such as the desire for higher status or other aspirations. Marketing increases demand and so affects the price of individual commodities. Premier Foods cut the advertising on Mr Kipling cakes and very soon after they were selling in Poundland. They obviously need to increase the size and quality of the cakes and improve the marketing, making them a premium product once again. It seems they are content to sell them at a discount and put their marketing budget into new products such as ‘Sweet Treats’. Hopefully, they will get around to spending some of their marketing budgets making their cakes exceedingly good, sometime soon. Someone in the marketing department might even have a brainwave and say ‘ah, Bisto’!

Supply and demand

Watching trends in supply and demand can make us more financially savvy. Demand for shares on the London Stock market today is down because of political fears, Solo Oil is bucking the trend on rumour.

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