On the other side, producers supply different amounts of goods for a given price. Let’s take the example of airplane tickets. If we check the prices offered by airlines, we will notice that the price of tickets is more expensive during the summer and holiday season than during other periods of the year. This is due to the high demand in this period. People, especially families with children, travel mostly during holidays to join their families for celebrations and during summer when children are off school for summer vacation.
When the demand is high, the prices increase. In addition to that, when the price is high, we notice that the airlines increase the supply by adding extra flights. In the case the airline continues to supply additional flights during the off-season when the quantity demanded has decreased, we will have an excess supply. If the excess supply tickets do not sell, then the airline will not be able to pay its employees and make a profit. This is why the companies try to keep their production within the equilibrium.
But there are some other factors that change the equilibrium. For example, if the weather is good, the production of vegetables is higher than usual; when the price of gas is low, the cost of transportation is lower, and with these two factors, we will have a higher equilibrium quantity for vegetables supplied.
On some occasions, we see the intervention of the government to control the prices of certain goods. The ruler sets up a price ceiling to prevent the increase of the price above a certain level so the population can afford to buy that particular good. For example, the government sets up a certain price for heating oil so the population can afford to buy this necessity. Also, the ruler sets up the price floor to aid the population, like the movement that is going on today in the USA about minimum wage. Even though in disagreement with businesses, the government of some of the US states has decided to set the minimum wage at $15 per hour in order to aid this class of population in affording a decent living.
References
- Mankiw, N. G., & Taylor, M. P. (2017). Microeconomics. Cengage Learning. (A widely used textbook that covers various microeconomic concepts.)
- Krugman, P., & Wells, R. (2019). Microeconomics. Worth Publishers. (Another popular textbook providing insights into microeconomics.)