When evaluating your small business plan, it's important to take into account the quantity of goods you produce versus the market for those goods.
The demand changes as a result of changes in price, other factors determining it being held constant. We shall explain below in detail how these other factors determine market demand for a commodity. These other factors determine the position or level of demand curve of a commodity.
It may be noted that when there is a change in these non-price factors, the whole curve shifts rightward or leftward as the case may be. The following factors determine market demand for a commodity.
Tastes and Preferences of the Consumers: An important factor which determines the demand for a good is the tastes and preferences of the consumers for it.
The changes in demand for various goods occur due to the changes in fashion and also due to the pressure of advertisements by the manufacturers and sellers of different products.
Income of the People: The demand for goods also depends upon the incomes of the people. The greater the incomes of the people, the greater will be their demand for goods. In drawing the demand schedule or the demand curve for a good we take income of the people as given and constant.
When as a result of the rise in the income of the people, the demand increases, the whole of the demand curve shifts upward and vice versa. The greater income means the greater purchasing power. Therefore, when incomes of the people increase, they can afford to buy more. It is because of this reason that increase in income has a positive effect on the demand for a good.
When the incomes of the people fall, they would demand less of a good and as a result the demand curve will shift downward.
For instance, as a result of economic growth in India the incomes of the people have greatly increased owing to the large investment expenditure on the development schemes by the Government and the private sector.
As a result of this increase in incomes, the demand for good grains and other consumer goods has greatly increased. Likewise, when because of drought in a year the agriculture production greatly falls, the incomes of the farmers decline.
As a result of the decline in incomes of the farmers, they will demand less of the cotton cloth and other manufactured products.
Changes in Prices of the Related Goods: The demand for a good is also affected by the prices of other goods, especially those which are related to it as substitutes or complements. When we draw the demand schedule or the demand curve for a good we take the prices of the related goods as remaining constant.
Therefore, when the prices of the related goods, substitutes or complements, change, the whole demand curve would change its position; it will shift upward or downward as the case may be. When the price of a substitute for a good falls, the demand for that good will decline and when the price of the substitute rises, the demand for that good will increase.
For example, when price of tea and incomes of the people remain the same but the price of coffee falls, the consumers would demand less of tea than before.
Tea and coffee are very close substitutes. Therefore, when coffee becomes cheaper, the consumers substitute coffee for tea and as a result the demand for tea declines. The goods which are complementary with each other, the fall in the price of any of them would favorably affect the demand for the other.
For instance, if price of milk falls, the demand for sugar would also be favorably affected. When people would take more milk, the demand for sugar will also increase.
Likewise, when the price of cars falls, the quantity demanded of them would increase which in turn will increase the demand for petrol.
Advertisement expenditure made by a firm to promote the sales of its product is an important factor determining demand for a product, especially of the product of the firm which gives advertisements.
The purpose of advertisement is to influence the consumers in favour of a product.The core ideas in microeconomics. Supply, demand and equilibrium.
Supply refers to the quantity of a good that the producer plans to sell in the market.
As price increases firms have an incentive to supply more because they get extra revenue (income) from selling the goods. If price changes, there is a movement along the supply curve, e.g. a higher price causes a. The individual demand curve illustrates the price people are willing to pay for a particular quantity of a good.
The market demand curve will be the sum of all individual demand curves. It shows the quantity of a good consumers plan to buy at different prices. 1. Change in price A change in price. Certain economic elements can shift these curves of supply and demand, and cause you to reassess your business strategy or goals.
In particular, there are specific factors that can force a shift. Factors that Affect Shifts in Supply and Demand The concepts of microeconomics definitely help in the understanding of the factors that affect shifts in supply and demand on the equilibrium price and quantity.
Microeconomics studies the behavior of individual households and firms in making decisions on the allocation of limited resources. It applies to markets where goods or services are. The Supply Curve in Microeconomics Factors that Affect the Market Demand Curve After this lesson you'll understand how shifts in supply and demand curves can affect market equilibrium and.