Running head: PRINCIPLES OF ECONOMICS

Michelle Bates
Principles of Economics
Professor: Christine Farias
Strayer University
Date: January 29, 2015
Economics 100

Running head: PRINCIPLES OF ECONOMICS

The article in question dwells upon the demand and supply correlation in the
commodity market in 2014. First, Sanderson and Hume (2014) note that demand for such
resources as iron ore, oil and others was quite significant in the 2014. Although there was
certain slow-down in development of markets in Asia and Europe, the demand did not
decrease dramatically during the year. However, the researchers also add another point. They
state that the supply increased significantly, as companies were willing to make more profits
and win larger markets.
Sanderson and Hume (2014) point out that the correlation between supply and
demand was violated. Thus, the authors note that supply grew by 12% in 2014 while demand
only increased by 9%. This led to the markets saturation and, as a result, to decrease in
prices. Finally, the authors conclude that demand is unlikely to return to the level of previous
years due to the slow-down in development of such markets as China.
This article can be seen as an example of the correlation between supply and
demand. It has been acknowledged that supply and demand are very close and they have a
significant impact on each other (Causevic, 2014). Thus, when supply for certain products are
decreasing, the demand is likely to decrease. Clearly, the right correlation between the two
concepts is important for products prices and producers (and sometimes governments) have
to undertake certain steps to affect prices. It is possible to note that there are numerous ways
to do that. Rahji and Adewumi (2008) state that the government should respond to the change
in correlation; when it comes to the grain market. Hence, the researchers note that the
government should restrict import of the product to increase the demand as well as prices
(Rahji & Adewumi, 2008).

Running head: PRINCIPLES OF ECONOMICS

The article also shows that the commodity market is highly elastic. The elastic
market is the one where the demand and supply correlation have a dramatic impact on prices
(Mankiw, 2014). The elasticity is determined by the fact that the products are essential or not
essential to consumers. Non-elastic markets are food or healthcare markets as people will still
buy these products irrespective of the price. Thus, if the prices go up, customers still buy the
products.
When it comes to commodities, these cannot be seen as essential products to
consumers as they are more important for producers. For instance, when the market is
saturated with these kinds of products, prices go down, as producers of consumer products
simply do not need so many resources. At the same time, when the demand is growing, the
price is also growing since the companies need resources to produce their products.
In conclusion, it is necessary to note that the article in question unveils the essence
of supply and demand correlation. The authors consider the commodity market and provide
substantial explanations of the reasons for the price decline at the end of 2014. I agree with
the authors that companies desire to produce more resources was one of the major reasons
for the decrease in process. Clearly, decreasing demand also played certain role in the
process. Nonetheless, companies desire to sell more and enter new markets was crucial in the
process. The article also helps understand one of the most important concepts of the market,
which has to be taken into account.

Running head: PRINCIPLES OF ECONOMICS

Reference List
Causevic, F. (2014). The global crisis of 2008 and Keyness general theory. New York, NY:
Springer.
Mankiw, N. (2014). Principles of economics. Stamford, CT: Cengage Learning.
Rahji, M.A.Y., & Adewumi, M.O. (2008). Market supply response and demand for local rice
in Nigeria: Implications for self-efficiency policy. Journal of Central European
Agriculture, 9(3), 567-574.
Sanderson, H., & Hume, N. (2014, December 22). Supply is key to commodities volatile
year. Financial Times. Retrieved from http://www.ft.com/intl/cms/s/0/f837f0188542-11e4-a06e-00144feabdc0.html#axzz3Q0xCSAiM