Explain Factors That Affect Supply and Demand [Name] [Institution] [Instructor] Table of Contents Table of Contents1 Introduction2 Factors That Could Cause Changes In Supply and Demand2 Substitute and Complementary Products3 Product: Teabags4 Necessity of Product and Price Elasticity4 References5 Introduction In business and economics, the relationship between potential buyers and sellers of goods is referred to as Demand and Supply. “Demand and Supply” was initially used by James Denham-Steuart, and has thence been unchanged.
People who are connected through present trends are influenced through changes in goods supply, demand and price elasticity (Tortajada, 1999). Various factors contribute to price and quantity changes, market equilibrium, substitutions, and price elasticity. In order to understand the relationship between supply and demand, economics analyzes the shift of efficiency and supply and demand curves. Goods possession uniquely affects individuals’ needs and wants through supply and demand.
A supply factor is one that affects a person’s decision to enlist products, while a demand factor is one that reflects overall access requirement (Tortajada, 1999). Factors That Could Cause Changes In Supply and Demand Demand is the willingness, desire and capability of a consumer to buy a good or service. Demand of goods can be affected by various factors. These include the price of related goods, which could either be substitute goods or complementary goods. It is expected that if the price of a substitute good goes down, then, the demand for the good will also be low because consumers will tend to buy the low-costing substitute.
Additionally, if the price of a complement good rises, then the demand for the good or service will fall. Demand can also be affected by consumers’ income. That is, if consumers experience an income rise, they will purchase more of a superior quality good and less of an inferior quality good (Heilbroner, &Thurow, 1994). Consumers’ taste, which is determined by education, friends and culture, will also tend to affect demand. Besides, weather will affect demand because different weather and seasons call for different items. For instance, rainy weather increases demand for umbrella and heaters.
In addition, population changes in terms of size and age affect products and service demands. For instance, when a population is swiftly aging, demand for goods and services for older people, such as materials to construct retirement homes, rise. On the other hand, supply refers to quantities of goods and services that producers are willing to sell in the market. Supply can be affected by various factors such as related goods. For instance, in a competitive supply scenario, when the cost of residential properties go up, homebuilders construct more, causing the supply of building materials to decrease.
Advancement in technology means greater output from a fixed amount of factors, thus increases supply. Introduction of new portable computers that have fast operating speeds and larger memory chips, results in reduced prices of older models of computers. Government intervention and political will affect supply greatly. For instance, if governments offer goods subsidy or favorably change policies on production, producers will definitely supply more goods (Heilbroner &Thurow, 1994). Just like demand, supply is also affected by weather and seasons.
For instance, in good weather, more agricultural products are available, thus the products’ supply in the market will be high. If the price of factors of production falls, supply of good or services will tend to go up. Other factors that may affect supply include future price expectations and the number of suppliers or producers in the marketplace. Substitute and Complementary Products Product: Teabags Substitute goods For a product such as tea or teabags, consumers may substitute it for products such as cocoa or coffee. That is, if the price of teabags goes up, onsumers will tend to buy other alternatives, which serve the same purpose. Consequently, if the price of teabags goes down, consumers will overlook cocoa or coffee and go for the teabags. Complementary goods Teabags’ consumers will use the product hand in hand with snacks such as biscuits. When the prices of snacks go down, consumers will buy more teabags to go with the snacks. Necessity of Product and Price Elasticity Product elasticity is a measure of responsiveness that makes an approximation of how much revenue will change and in what direction, when product prices are altered.
In relation to demand, elasticity is the scale to which a variation in price can cause a change in the quantity of the product demanded; in relation supply, elasticity measures how the quantity of supplied goods or service changes with price (Kennedy, 2000). Most price elasticity occurrences are almost always negative. Change in prices of some teabags will lead to a relatively huge change in product quantity that consumers demand. Hence, such product has many substitutes and consequently, higher elasticity.
For instance, price elasticity of demand for beverage products will be lower compared to price elasticity of tea. When the price of teabags goes up, consumers of tea can turn to various options such as taking cocoa, coffee, and other beverages. References Heilbroner, R. , & Thurow, L. (1994). Economics Explained: Everything You Need to Know About How the Economy Works and Where It’s Going. New York: Simon & Schuster. Kennedy, P. (2000). Macroeconomic Essentials. Cambridge: MIT Press. Tortajada, R. (1999). The Economics of James Steuart: (Routledge Studies in the History of Economics). New York: Routledge.