Market Demand Theory and Empirical Evidence

Question: Discuss about the Market Demand for Theory and Empirical Evidence. Answer: Introduction: The study is conducted is about the oil and gas market of Australia. The factors affecting the supply and demand of the oil and gas has been given the due considerations in the analysis. Those factors are considered the vital tool in the analysis of the micro economic theory of the supply and demand. Demand refers to the quantity demanded for the desired goods and service purchased by the buyers at the given level of price (Akinci, Akinci and Yilmaz2013). Supply on the other hand is the willingness of the producer to supply the oil and gas at the specific price. The discussion is about the factors influencing the supply and demand of oil in Australia. The eastern region of Australian gas market is conclusively linked with the international gas market. The LNG market is Australia has been facing with the supply of natural resources in the surplus amount, which is creating a great degree of uncertainty. The domestic price of oil and gas is determined by the various factors such as the cost associated with the supplying of the products, short run net backs and competition. It is considered essential to make the investment in the production capacity and the new supply to provides the support in the eastern region of the Australian industry (Azrieli 2014). Demand for crude oil is on the rise and it is forecasted that demand will keep on increasing in the near future in spite of the rise in price. The reason behind the upward surge in consumer demand for petroleum product is due to the annual rise in demand and non-availability of the low-priced substitutes. Both the consumers and business firms are likely to be acting in their own inte rest. Discussion: The demand and supply of oil and gas in Australia is influenced by the several factors. The factors to be considered are the price of substitutes, ongoing price, price of related commodities, earning of the consumers and taste and preferences pattern of the consumers. However, these are micro economic factors. The supply and demand also is influenced by the macro economic factors such as the population and GDP of the country. On the other hand, the supply of the product is mainly influenced by the production cost, cost of the factor of production, future price anticipation. The analysis of the mechanism of the demand and supply is conducted in a detailed way before the consideration of the supply and demand of oil and gas in the industry of oil and gas in Australia. Australia is well known for the different kind of resources such as mining resources, natural resources and agricultural resources and the supply and demand of these resources is considered identical (Francis 2014). There is circumstances of noteworthy differences amid the two elements with prevailing situations of exogenous aspects of the economy. These exogenous economic factors establishes during the analysis provides different types of result for both oil and gas. For example, by considering the illustrations of Eastern regions of Australias oil and gas market there is prevalent circumstances of asymmetrical options in the theory of demand and supply. Since there was low pressure concerning international market in the year 1990, the demand of the natural gas of Australia was not high (Nelson 2013). Prior to that, the supply and demand of the natural oil and gas in the Eastern Australia witnessed an increase in light of huge development in the large exportation of the oil and gas of the Australian market. The instance of the brown sugar field can be considered here which gave the evidence of the fact that there was incomplete availability of the LNG from the gas field in the Australian market. However, the fall in supply was mainly due to the external factors. The LNG exportation received all the gas produced from the oil field in Australia during the period of twelve years. There was no shortage in the demand zone of oil and gas and the supply of reserves of the Australian eastern region was met with enough supply of gas. The production stage would be changed due to the driver of the domestic price. This is because it is forecasted that there is no connection between the net back price of LNG and the domestic price of gas. The quantity demanded of the product is influenced by the macro economic factors affecting its demand and supply. This will lead to shift in the demand curve (Rios, McConnell and Brue 2013). There is a shift in the demand curve due to the factor other than price. Alternatively, if the factor leads to decrease in demand then the demand curve will shift to right side. Factors such as disposable income, price of alternatives, fluctuations of interest rate and growing populations is the most important element demand and supply. The natural resource consumption would unsurprisingly increase due to the increasing population, which significantly influences the consumption. Only a limited number of substitute product will be used and the major reason behind the downward sloping of demand curve is when cost of natural resources increases. The consumption of the natural resources is predicted to increase compelling the consumers to look for substitutes such as oil and coal (Li and Yang 2016). The demand is projected to decrease as the substitutes are available cheaply and ultimately shifting the demand curve. As the substitute product are cheaper it is projected that demand will dip and ultimately leading to shift in demand curve since consumers have shifted to cheaper source for energy consumption. Conclusion: The supply and demand of the oil and gas depends upon the endogenous and exogenous factors. The price is not the only factor affecting the demand and supply. Several treasures have laid down that Australia has been experiencing constant growth in economy for the last 25 years. The economic reforms, however needs some activities and real investment to occur as the greater degree of economic reforms requires it. Therefore, it is worth mentioning that new exports in the gas market have significantly increased economic trend of Australia. Reference list: Akinci, G.Y., Akinci, M. and Yilmaz, ., 2013. Demand following or supply leading? 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