Factors affecting demand and supply in economics pdf

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factors affecting demand and supply in economics pdf

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We defined demand as the amount of some product that a consumer is willing and able to purchase at each price. This suggests at least two factors, in addition to price, that affect demand.

Demand drives economic growth. Businesses want to increase demand so they can improve profits. Governments and central banks boost demand to end recessions. They slow it during the expansion phase of the business cycle to combat inflation.

Law of Supply and Demand

Even though the focus in economics is on the relationship between the price of a product and how much consumers are willing and able to buy, it is important to examine all of the factors that affect the demand for a good or service. There is an inverse negative relationship between the price of a product and the amount of that product consumers are willing and able to buy. Consumers want to buy more of a product at a low price and less of a product at a high price. This inverse relationship between price and the amount consumers are willing and able to buy is often referred to as The Law of Demand.

The effect that income has on the amount of a product that consumers are willing and able to buy depends on the type of good we're talking about. For most goods, there is a positive direct relationship between a consumer's 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 increase; when income falls, the demand for the product will decrease.

However, for some goods the effect of a change in income is the reverse. For example, think about a low-quality high fat-content ground beef. You might buy this while you are a student, because it is inexpensive relative to other types of meat. But if your income increases enough, you might decide to stop buying this type of meat and instead buy leaner cuts of ground beef, or even give up ground beef entirely in favor of beef tenderloin.

If this were the case that as your income went up, you were willing to buy less high-fat ground beef , there would be an inverse relationship between your income and your demand for this type of meat. There are two important things to keep in mind about inferior goods.

They are not necessarily low-quality goods. The term inferior as we use it in economics just means that there is an inverse relationship between one's income and the demand for that good. Also, whether a good is normal or inferior may be different from person to person. A product may be a normal good for you, but an inferior good for another person.

As with income, the effect that this has on the amount that one is willing and able to buy depends on the type of good we're talking about. Think about two goods that are typically consumed together. For example, bagels and cream cheese. But if we want fewer bagels, we will also want to use less cream cheese since we typically use them together.

Therefore, an increase in the price of bagels means we want to purchase less cream cheese. We can 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. On the other hand, some goods are considered to be substitutes for one another: you don't consume both of them together, but instead choose to consume one or the other. For example, for some people Coke and Pepsi are substitutes as with inferior goods, what is a substitute good for one person may not be a substitute for another person.

If the price of Coke increases, this may make Pepsi relatively more attractive. The Law of Demand tells us that fewer people will buy Coke; some of these people may decide to switch to Pepsi instead, therefore increasing the amount of Pepsi that people are willing and able to buy. We summarize this by saying that when two goods are substitutes, there is a positive relationship between the price of one good and the demand for the other good.

This is a less tangible item that still can have a big impact on demand. There are all kinds of things that can change one's tastes or preferences that cause people to want to buy more or less of a product. For example, if a celebrity endorses a new product, this may increase the demand for a product.

For example, if you hear that Apple will soon introduce a new iPod that has more memory and longer battery life, you and other consumers may decide to wait to buy an iPod until the new product comes out.

When people decide to wait, they are decreasing the current demand for iPods because of what they expect to happen in the future.

Similarly, if you expect the price of gasoline to go up tomorrow, you may fill up your car with gas now. So your demand for gas today increased because of what you expect to happen tomorrow. This is similar to what happened after Huricane Katrina hit in the fall of Rumors started that gas stations would run out of gas. As a result, many consumers decided to fill up their cars and gas cans , leading to long lines and a big increase in the demand for gas.

This was all based on the expectation of what would happen. As more or fewer consumers enter the market this has a direct effect on the amount of a product that consumers in general are willing and able to buy.

In the summers, when less students are taking classes, the demand for their product will decrease because the number of consumers in the area has significantly decreased. These factors include: Price of the Product There is an inverse negative relationship between the price of a product and the amount of that product consumers are willing and able to buy.

The Consumer's Income The effect that income has on the amount of a product that consumers are willing and able to buy depends on the type of good we're talking about. The Price of Related Goods As with income, the effect that this has on the amount that one is willing and able to buy depends on the type of good we're talking about. The Tastes and Preferences of Consumers This is a less tangible item that still can have a big impact on demand.

The Number of Consumers in the Market As more or fewer consumers enter the market this has a direct effect on the amount of a product that consumers in general are willing and able to buy. Back to Demand. Join an Experiment. Copyright Experimental Economics Center. All rights reserved. Send us feedback.

6 Important Factors That Influence the Demand of Goods

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Supply and demand , in economics , relationship between the quantity of a commodity that producers wish to sell at various prices and the quantity that consumers wish to buy. It is the main model of price determination used in economic theory. The price of a commodity is determined by the interaction of supply and demand in a market. The resulting price is referred to as the equilibrium price and represents an agreement between producers and consumers of the good. In equilibrium the quantity of a good supplied by producers equals the quantity demanded by consumers. The quantity of a commodity demanded depends on the price of that commodity and potentially on many other factors, such as the prices of other commodities, the incomes and preferences of consumers, and seasonal effects. In basic economic analysis, all factors except the price of the commodity are often held constant; the analysis then involves examining the relationship between various price levels and the maximum quantity that would potentially be purchased by consumers at each of those prices.

Factors affecting Supply

The demand for a good depends on several factors, such as price of the good, perceived quality, advertising, income, confidence of consumers and changes in taste and fashion. This occurs when, even at the same price, consumers are willing to buy a higher or lower quantity of goods. This will occur if there is a shift in the conditions of demand.

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Supply and demand

Supply refers to the quantity of a good that the producer plans to sell in the market. Supply will be determined by factors such as price, the number of suppliers, the state of technology, government subsidies, weather conditions and the availability of workers to produce the good. This occurs when firms supply more goods — even at the same price. For example, a new machine which enables more of the good to be produced for the same cost.

Updated: Sep 30, In economics, Supply is a fundamental concept that describes the total amount of a specific good or service that is available to consumers. Consumers express their interest in purchasing a good or service and exhaust available supply, which will generally result in an increase in demand. Supply curve. The supply curve is a graphic representation of the correlation between the cost of a good or service and the quantity supplied for a given period. The supply curve will move upward from left to right, as explained in the law of supply: As the price of a given commodity increases, the quantity supplied increases all else being equal.


Factors Influencing Demand A shift of the Demand Curve. Topic 2: Demand and Supply. 3. Supply. ▫ Alfred Marshall, Principles of Economics ( ed.)[​.


COMMENT 1

  • When factors of demand are large enough to influence the total demand for a if an economic recession hits and household income decreases, the demand for The amount that a producer is able to produce, or yield, directly affects supply. Hugh D. - 02.05.2021 at 04:15

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