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Market Demand and Supply Assignment Solution
First, the price of a commodity refers to the value nowadays interns of money that are used to purchase a finite quantity, weight of any other measure of a good or service. Pricing, on the other hand, is a term used to refer to the studies aiming to discover what consumer is willing to pay for a product or service when purchasing it (Adewuyi, 2016, p.73). Therefore, in this pricing research for any commodity is aimed at determining the pricing of petroleum products in Nigeria. The issue of petroleum products pricing has dominated the public discourse and policy contestations for years in Nigeria. The focus of the contestations is the removal of Subsidy, Deregulation of the appropriate pricing. The center of this is the pricing and therefore the cost of petroleum products to producers and consumers behaviour in the economy. Although most Nigerians are not aware of the pricing mechanisms used for petroleum products and what determines their prices, the Government of Nigeria has been on the frontline in intervening for price discovery of petroleum products in Nigeria. In this case, the focus of this research is aimed at supporting the government to continue in the intervention of price discovery of petroleum products in Nigeria (Hu, Pan, and Wang, 2017, p.399). It is also aimed at looking at the theoretical concepts and their effects on the supply and demand of petroleum products in Nigeria.
Considering the concept of demand and supply, we get to find that this is what causes a change in the prices of products and the exchange rates. Demand refers to how much of goods and services a customer wants while supply means how much of a commodity a supplier is capable and willing to supply to the market (Ajibola, Enilolobo, and Theodore, 2017, p.77). When the prices of commodities are low, demand for goods and services is high and more consumers tend to make a lot of purchases because they are cheap. On the other hand, when prices are high, few consumers will purchase them because they are expensive. Now when prices of commodities are low, the supply of those goods becomes low because of low profits made by suppliers and when prices are high supply becomes high because of high benefits expected by the producers after selling large quantities (Bordonaro, Molnár and Samdal, 2017, p.164).
The demand of the major products of petroleum in Nigeria discussed in this research consisting of liquefied petroleum gas (LPG), fuel oil, gasoline, diesel etc. was estimated with the use of Structural Time Models (STSMs). This accounts for the changes in structure in energy demand estimates. The suggestions made by the results are that the petroleum products demands in Nigeria are both price and income inelastic and also the trends in demand are scholastic naturally. It was found that the elasticity of LPG was the most high compared to other petroleum products in this case kerosene, fuel oil, diesel, and gasoline. The government of Nigeria has been subsidizing petroleum products which have been of great help to the consumers because subsidies make the cost of producing petroleum products low which have a result lowers the prices of petroleum products themselves (Clark and Phil, 2016, p.76). Therefore the provision of subsidies from the government has increased demand for petroleum products by the consumers.
We have incentives which are also economic theory concepts and have been used by the Nation of Nigeria in product price discovery. This is what motivates a company to behave in a certain way. The incentive provides a company or a firm with motivation to pursue its preferences. Preferences, on the other hand, refer to what one needs, wants or desires. Now in this research paper, we find that the government of Nigeria has been using incentives to motivate petroleum products producing companies in their productions process. Some of the incentives given to these companies are like tax reduction (Naser, 2016, p.75). Reduced taxation on their produced products is advantageous because it means that they will sell their products at lower prices. Reduced prices on petroleum products because of incentives from the government create high demand of the same therefore the increased sales.
The purchasing power has also been used in the process of discovering the prices of petroleum products in Nigeria. This is an economic concept that is used to refer to the financial ability of a currency to buy goods and services. For instance, having a dollar this year, the dollar will remain to be one dollar years to come, but the value of the dollar might appreciate or depreciate (Tunde and James, 2018, p.19). This means that the dollar might become worth less than it was before or worth more in the years to come. If it becomes worthless, you are required to add more money to purchase a commodity you were buying with the same dollar previously. The concept of purchasing power has been used during the purchasing of petroleum products development in Nigeria. Sometime due to inflation, the value of Nigerian currency might lose value, and therefore this affects the purchasing power of this currency. In such an occasion you find that the amount of money one used to purchase a Liter of diesel increases due to inflation to a higher price. It might have reduced too.
The government of Nigeria has intervened by putting measures for controlling the rate of inflation so that it may protect the value of Nigerian currency by either maintaining it at a constant of increasing its value so that one can purchase more products with a little amount of money. The reduced purchasing power of currency has its effect on the supply and the demand for petroleum products (Daniel, Veung, and Watson, 2016, p.264). This is because, whenever the value of money reduces, more money is required to buy goods and services. This happens due to the increased cost of goods and services. When the cost of petroleum products increases, demand lowers, while when the cost lower, the demand increase. Therefore, the purchasing power of Nigeria’s currency determines the demand for petroleum products in Nigeria.
It is notable that the government of Nigeria has made efforts of intervening and offering subsidies, incentives and controlling the purchasing power of Nigeria’s currency to petroleum products produced in the process of discovering petroleum products prices (Bordonado, Molnár and Samdal, 2017, p.164). The act of the government helping producers and suppliers with tax credits, the overall prices of their products and services is much reduced. On the other side of the consumer, government subsidies on the petroleum products are helping the consumer because the consumer can now acquire the products at a lower price. Subsidies by the government may have side effects too. This is because they will lead to lower supply because of the increased demand by the petroleum products consumers. Government intervention in the price discovery has various advantages. Price discovery cans ensure that the necessary goods and services are readily available and affordable to most citizens. This is because most of the production industries depend on petroleum products to produce their goods and services (Potori, and Stark, 2015, p.126). Therefore, controlling the prices of petroleum products will make them the produce at lower prices friendly to most citizens.
Proper pricing makes sure that producers receive enough revenue allowing them to adjust to the market climate and limit the possibility of a shortage. This is important more so in a market where the fluctuations of commodities price are frequent. Price control also helps during the times of shortages that citizens are not charged high prices for products (Ezeoha, we, Onyeke, and Uche, 2016, p.152). Price discovery for a product sometimes might cause a shortage. Shortages occur when the demand for the products id high and the ability of the producer to supply these products is low. This is mostly caused by reduced prices leading to increased demand by the consumers. Also during price discovery, when a shortage arises may result in discrimination. This is where commodities are sold to the consumers based on regional differences and also depending on different groups of people (Narayan and Sharma, 2018, p.122).
In conclusion, the issue of petroleum products pricing has dominated the public discourse and policy of Nigeria for decades. In this research, it has been noted that there are many ways that the government of Nigeria is implementing in discovering the prices for products in Nigeria. The government has applied the use of subsidies to reduce the cost of production which will as well as lower consumer purchasing prices (Bollen, O'Neill, and Whaley, 2017, p.431). It has also made the use of incentives such as reduced taxes to motivate the companies to continue producing these petroleum products at a lower price. The government has also made efforts in controlling inflation in the country which as well maintain the value of the currency high. It is all clear that there are some efforts made to ensure that petroleum prices are stabilized and made affordable for the most Nigerian citizens. With all this information at hand, the recommendations that can be made on this research is that the government should continue on intervening for the discovery of affordable petroleum prices in Nigeria for this is important for the growth of the Nigerian economy (Ezeoha, Igwe, Onyeke and Uche, 2016, p.152).
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