Demand And Supply Hw

1． Trend in demand: From the diagram we know that the main demand is jewellery fabrication, Since 1989，the incomes of people generally have increased. Therefore they consider buying unnecessary goods to satisfy their unlimited wants. For instance, they buy gold either for jewelry or for investment. This leads to an increase in demand for gold. Another reason of increasing demand is an increase in population. More people, more needs and wants. Therefore it is likely to increase demand for gold. In addition, hedging and options only take a small amount in total demand so that they won't make a big consequence on demand for gold.

As mentioned, an increase in demand has been created .the demand curve shifts to the right from D1 to D2.At a price of OA, quantity bought rises from OB to OC.

2. Trend in supply: According to Figure 6.5, we see that supply of gold generally increased from the startpoint 3000 tonnes to app.4100 tonnes. We can also see that "scrap" and "net official sales" have made a great contribution to raising the supply. Producers supply scrap to meet the demand for "other fabrication" such as coins and tooth fillings.

From Figure 6.6 the demand for "other fabrication" has increased recently, for this, producers might provide more because it is found that they can make a profit from it. This can be proved from 1997 to 1998 in Figure 6.5.This situation was as the same as that of Net official sales for supply and bar hoarding for demand. Therefore, the trend is that supply has increased .This can seen in the diagram below: Supply curve shifts to the right, at price AE, quantity rises from B to C.

2. No longer is gold a good speculation, people prefer putting their money in the bank to investing in gold. As 'holding gold fails to generate interest' .therefore a decrease in demand is created. This is shown by a shift to the left in the demand curve from D1 to D2.That means at any price, there is a fall in the quantity. Supply curve remains the same. Equilibrium price falls from EP1 to EP2.EQ falls from EQ1 to EQ2.As there is fewer and fewer people investing in gold, supply of gold must be greater than its demand. For instance, at price OA there is an excess in supply BC. Therefore market pressure will force the price downwards until getting close to EP2.

3. Case 1. If the income of people rises, there will be an increase in demand. As normal goods, more gold will be bought by people due to increase of wages. Because their life quality is improved and they have more money available, they can buy more jewelry made of