Question

Apply supply and demand analysis as a qualitative forecasting tool to see the "big picture" in competitive markets.

Short answer

Supply and demand analysis help the consumer to forecast the competitive market conditions through the change in expected prices and income from different external situations.

Step-by-step solution

Supply and demand analysis

Price and quantity demand move in opposite directions according to the law of demand. It means, that as the price rises, the demand of quantity falls, and vice versa.

Accoding to the supply of law, if the price rises, the quantity supplied will also rise, and vice versa.

Forecasting of competitive markets

Forecasting indicates the study of behavioral changes in price due to sudden external situations. Such external situations might arise due to an increase in the cost of production as the price of inputs increases. Moreover, an incraese in tarrifs or quotas might also affect the price.

An increase in the cost of inputs increase the value of the commodities generated, leading to an increase in price, which will , in turn, decrease the demand for the goods in the competitive markets. The presence of cheap substitutes might force the consumers to attian those commodities at an cheaper rate. Also, an increase in tariffs imposed by the government will reduce the supply in the market resulting in a higher price of commodities. Moreover, a fall in consumers' income will reduce the commodity demand.

A fall in the costs of input will decrease the value of the quantity produced, reducing the price charged in the market. The presence of expensive substitutes would induce the consumer to shift to cheap commodities, increasing the revenue for the former. An imposition of subsidy would induce the suppliers to supply more commodities, decreasing the price in the market. Thus, increase in demand for the commodities. Moreover, an increase in the income of the consumers would also increase the demand for the commodities in the competitive market.