Supply and demand of energy drinks

Supply and Demand of energy drinks.

      According to the article I have reviewed from a book entitled “Redbull and market on the energy drinks” on the 1^st of October 2012, it reflects the competitive market of energy drink that affects the supply and demand of these products.In year 2009 Redbull was basically the main energy drink in the market.Through out the years,many new companies produced energy drink due to the increase the demand for energy drinks mainly for students.New brands such  as Rockstar and Monster Energy Drink entered the market which results to a perfect competitive market.Competitive market can be elucidate where there are many buyers and sellers,all the products sold are identical and there are no barriers to new firms to enter the market.Other than that,the model of demand and supply is very useful to these companies in helping them to predict the changes in quantity and prices in the market.Indubitably,many factors influence the willingness of consumers to buy a particular product.In this case,consumers who are considering to buy an energy drink based on ther three brands state earlier will make their decisions based on the price despite the other factors such  as income and effectiveness of the advertising campaign of the companies that sells the energy drinks.As a producers the theory of considering what a consumer wants to buy is both willing and able to buy needs to be adapt.Through the article,the theory or application of supply and demand proves that when price increases,the quantity of demand decreases.Through the demand schedule  we could see the relationship between the price of energy drinks and the quantity of product demanded and also through the demand curve we could also understand better the relationship of the two variable stated earlier.

Let’s have a look at the graph below:

        As you can see,based on the graph we could say that the demand curve slopes downwards because consumers will buy or consume more amount of cans when the price decreases.For example,in this case if a can of energy drink cost about $3.00 per can,consumers will only buy 60 million cans per day where as if the price lower down or decrease by $0.50 it will increase the quantity bought by consumers for 10 millions more cans per day.This proves that the product became less expensive compare to other products which encourage the consumers to consume more when the supplier decreases the priceThis  shows that consumers are willing to buy the energy drinks at a lower price because they can afford to buy more.

      In addition,law of demand plays a big role in determining the analysis and market for energy drinks.It states that inverse relationship between the price of a product and the quantity of the product demanded which is also can be interpret as holding everything else constant which also known as ceteris paribus,when the price of product falls,the quantity demanded of the product will increase,and when the price of the product rises,the quantity demanded will decrease.The law of demand holds for any market demand curve.Consumers buy a larger quantity when the price decrease because of the substitution effect and the income effect.Substitution effect refers to the change in the quantity demanded good that results from a change of price making the goods less expensive and relative to other products that are substitutes.For example,when the price of energy drinks increase,consumers will find subtitutes to other drinks such as coffee or sports drink.As for the income effect,the price change refers to change in the quantity demanded of a good that results from the effect of change in the good’s price on consumer’s purchasing power.Thus,a fall in the price of energy drinks lead consumers to buy more energy drinks.This is because both the cans are now less expensive relative to the substitute products and because the purchasing power had increased.Despite change in price,when we allow other variables to affect the willingness of consumers to buy energy drinks would result to change in quantity of demanded at each price for energy drinks.Therefore,shift in demand curve will occur whether it is increase or decrease in demand which is a movement along the curve.Variables that would shift the market demand are the income,prices of the related good,taste,population and demographic and expected future prices for the energy drinks.The graph below will illustrate the changes in demand curve:

  

When consumers increase the quantity of energy drinks that they want to buy,the market demand curve shifts to the right,from D1 to D2 whereas when consumers decrease the quantity of energy drinks that they want to buy the demand curve shifts to the left,from D1 to D3.

Now,we will look at the supply side of the market for energy drinks,same as demand many variables influence the willingness of the producers to sell a good or services.In this case, when the price of energy drinks rises,producing the goods are more profitable,therefore quantity supplied will increase which is a good news towards the producers.

   

Below is the supply curves that explains the relationship between the price of energy drinks and the quantity of the drinks supplied:

As price changes,Red Bull,Monster Energy,Rockstar and other firms that produces energy drinks change the quantity they are willing to supply.This is shown in the graph.For example,at a price of $2.50 per can producers are willing to p 90 million cans where as at a price of $3.00 producers will supply 100 million cans.Most supply curves are to be upwards according to the supply law which states an inverse relationship that when everything is constant,increases in price will cause increase in the quantity supplied.Variables that will shift the market supply will be prices of inputs,technological change,prices of substitutes in production,number of firms in the market and expected future price for energy drinks.

 Then,the purpose of a market is to bring buyers and sellers together which brings us to the market equilibrium.The demand for energy drinks will cross the supply curve at a point which is known as e the point of market equilibrium.

Conclusion, in a rapidly growing market such as energy drinks,firms need to increase productivity capacity quick enough in order to compete in the market.Fail to do so,will result in losses for firms that produces energy drinks.

By Najwa binti Mohamed Mokhtar