factors affecting Demand and Supply Essay

In economics, Demand refers to the quantity of a effectuals or services that consumers are instinctive and capable to buy at a given determine in a given time period. The law of enquire stipulates that in that respect is an assward relationship between the scathe of a salutary and the quantity directed, that is to say, if the damage of, say, good X acclivitys, it volition decrease the quantity dealed of good X and the footing of the good falls, this will bring an expansion of the quantity demanded. The draw below clearly explains the above statementA movement on a demand make out save occurs when in that respect is a qualify in the determine of the good in question. Some textbooks call these movements extensions and contractions. In the diagram below (Fig 1.1), when the outlay of CDs falls (from P1 to P2) at that place is a turn out in demand (from Q1 to Q2), ceteris paribus. The movement along the twist around is from point A to point B. When the price ris es (from P1 to P3) there is a fall in demand (from Q1 to Q3), ceteris paribus.The movement along the curve is from point A to point C. vizor that we must say ceteris paribus. If unmatchable of the some other determine factors of demand changes as well, and then(prenominal) the curve would charge.A substitute in the demand curve occurs if one of the other (i.e. non-price) determinants of demand change. This means that for a given price take the quantity demanded will change. This is illustrated in the diagram belowFig 1.2 tint that the price has not changed (P1) and yet demand has addd (in the pillowcase of the shift to D2) to Q2. This could be due(p) to a rise in real incomes (assuming the good is normal see the required section in the Elasticities topic), a rise in the price of a substitute good, a fall in the price of a complement, etc. (see determinants of demand above). In the case of the shift to D3, demand has fallen even though the price has resideed constant.It i s fairly plain so far that the price of a good is a handsome strong determinant of its demand, but there are many other things that will affect demand too. First of all, the disposable income is one of the factors causing a shift in the demand curve. The effect that income has on the descend of a crossroad that consumers are willing and able to buy depends on the type of good were talking about. For most goods, there is a positive (direct) relationship between a consumers income and the amount of the good that one is willing and able to buy. In other words, for these goods when income rises the demand for the product will join on when income falls, the demand for the product will decrease. The above is the case for normal goods. However, when there is an inverse relationship between ones income and the demand for that good, it is categorised as inferior good.Another factor which is a determinant of demand is the price of related goods. As with income, the effect that the price of related good has on the amount that one is willing and able to buy depends on the type of good were talking about. calculate about two goods that are typically consumed together, for lesson, tea and milk (complements). If the price of milk goes up, the Law of Demand tells us that flock will be willing/able to buy slight milk. But if we want less milk, we will in any case want to use tea and therefore, an increase in the price of milk means we want to purchase less tea. We squirt thus summarize this by saying that when two goods are complements, there is an inverse relationship between the price of one good and the demand for the other good.A persons taste and pick outence is likewise one slightly obscure but very important determinant of demand. It could be illustrious that if a good becomes fashionable, this will boost up the demand. For example, if a celebrity endorses a new product (like Pepsi), this might increase the demand for the product. On the other hand, if a c ampaign crops up, stating that the product is illegal to health, this would decrease the demand of the product.An increase in the population of a unsophisticated will be another determinant ofdemand of a product. more(prenominal) people will mean more demand for, say, bread. Nonetheless, it should be noted that a change in the structure of the population, (an ageing population), this will increase the demand for some goods but reduce the demand for others. For example, the quantity of health check shoes will increase in an ageing population.Advertising is excessively seeming to have a great impact on the demand of a product. Many of you probably doubt the usefulness of some of the shock adverts on the TV. We may assume that companies would not spend fortunes on announce if they did not expect to see a significant rise in demand for the product in question. This can be clearly shown when supermarkets proclaim their price drop-downs, through flyers, TV adverts, radio et al.S ome people perpetually think of securing a better future. In so doing, if they expect the price of a good to rise in the future, they will more likely to demand for more of the product. For example, if we hear that Apple, the electronic giant, will soon let out a new iPod that has more memory and longer battery life, people may decide to wait to buy an iPod until the new product comes out. This will surely decrease the demand for the current iPod as they will prefer the new ones.On the other hand, just like with demand, where it only became effective if it was backed up with the efficacy to pay, bestow is defined as the willingness and ability of bring uprs to return goods and services on to a market at a given price in a given period of time. In theory, at higher prices a larger quantity will mostly be supplied than at lower prices, ceteris paribus, and at lower prices a smaller quantity will generally be supplied than at higher prices, ceteris paribus. diagramA movement al ong a supply curve only occurs when the price changes, ceteris paribus. In other words, the price changes but the other non-price determinants remain constant. The diagram below shows that a price rise will perform an extension up the supply curve, from point A to point B, whilst aprice fall will cause a contraction back down the supply curve, from point A to point C.Supply curves shift, at all prices, if there is a change in one or more of the determinants of supply. If something happens that decreases a firms costs regardless of the price level (e.g. alter technology or a subsidy from the government), then the firms supply curve shifts to the right. The diagram below demonstrates these shifts check that the price remains unchanged at P1 the shifts in the supply curve are caused by various changes in the determinants of supply.As with the demand curve, there are many things that affect supply as well as the price of the good in question.The most important factor determining the s upply of a commodity is its price. As a general rule, price of a commodity and its supply are directly related. It means, as price increases, the quantity supplied of the given commodity also rises and vice-versa. It happens because at higher prices, there are greater chances of making profit. It induces the firm to offer more for sale in the market.The price of other factors of other goods is one of the determinants of the supply. Increase in the prices of other goods makes them more profitable in comparison to the given commodity. For example if it is more profitable to produce LCD TVs then producers will produce more LCD TVs as compared to PLASMA TVs. Thus the supply curve for PLASMA TVs will shift inwards i.e. there will be a fall in supply. Another factor to determine supply is through Technology. Technological changes influence the supply of a commodity. Advanced and improved technology reduces the cost of toil, which raises the profit margin. It induces the seller to increa se the supply. However, technological adulteration or complex and out-dated technology will increase the cost of production and it will lead to decrease in supply.Govt., through taxation policies, is also a determinant of supply. Increase in taxes raises the cost of production and, thus, reduces the supply, due to lower profit margin. On the other hand, tax concessions and subsidies increase the supply as they make it more profitable for the firms to supply goods.