Demand and Supply

Demand and Supply are two major key concepts of Economics. Major part of economics is reliant on these two variables. Let's have a look at what these are.

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Demand
Demand can be defined as the amount of goods or services that the consumers are willing and are able to buy at a given price over a period of time.

Demand solely can be affected by a number of factors.

Price- Price is one of the main factors that affect both supply and demand. Before making a purchase, we never forget to check the price, because we have to fund that purchase using a scarce resource. Simply,when the price is high the demand is likely to be lowered and when the price is low the is likely to be high. We will further discuss about how the price affect demand and how will demand affect the price in the upcoming sessions along with demand curves.

Income of the consumers- Same as price income also is a major determinant of demand. Income determines the purchasing power of the consumers. Higher the demand, higher the ability of the consumers to purchase more goods and services.

Price and Availability of alternatives- Alternative goods are exact or nearly similar goods. For example, Coca cola and Pepsi, the core content in products are similar. Thus, the availability and price of goods are likely to affect the demand. If the price of the alternative product is lower than the main product then the demand for the main product is likely to shift to the alternative and vice versa. However, the elasticity of demand (responsiveness of demand) is quite depending upon the availability of alternatives.


Complementary goods- These are jointly consumed goods that are consumed together. Price of availability of one good directly affects the demand of the other. These types goods are known to have a positive relationship in demand. The best example would be computer hardware and software, if someday the software programs deem to exist or prices reach an extremely high peak then the demand for computers are likely to fall as computers would be just a pile of metal without software.

Apart from the above-mentioned major factors that affect demand, there are also other factors such as Advertising, Trends, Tastes and fashion and speculation of consumers.


Supply
On the other supply is the number of goods or services that the sellers are ready to sell at a given price over a period of time.

Supply solely can be affected by a number of factors.

Price- As with demand, the price is the main factor that affects supply as well. If the market price is too low and sellers see that not profitable to sell at that price then they are likely to reduce supply and expect a rise in the price in the future and vice. We will further discuss about the demand and supply equilibrium quantities and price in a later discussion.

Availability and cost of resources- Cost of production is the other major factor that affects supply. This includes both the availability and costs of resources. If the resources required for production are difficult to be reached or if the costs a high then the suppliers are likely to reduce the supply. For example, fora bakery if the key raw materials have a low supply due to availing weather conditions then this is likely to reduce the supply.

Technology- This is factor mainly acts as a variable for how fast the company increase its supply. To make it simple, a firm operating with high-tech machinery and production methods is likely to be able to increase supply faster compared to a firm who is acquired with less technology.

Apart from the main factors, few other determinants of supply are seasonal factors (mainly for the agricultural sector), Competition, Government influence and related supply.