Saturday, 12 January 2013

Determinants of Demand & Supply

Hi there! In the previous post, I mentioned that I'll be posting about the determinants of demand and supply.
And here I am today, to reveal the answers! :)

Determinants of Demand

  • Tastes and Fashions
As time goes by, fashion changes. Everyone would want to keep up to the latest fashion trend. Other than that, advertising and health considerations are two factors which affect tastes and fashions as well. If there is a large market in a product, the demand for that product will increase.













  • Seasons
The demand for different clothes will change as we go into different seasons. For example, the demand for winter clothes will increase in winter, while the demand for summer clothes will go down.
  • The number and prices of related goods 
Substitutes: The higher the price of substitutes, the higher the demand for this product. For example, if the price of coffee rises, then the demand for tea will increase. 

Complements: The higher the price of complements, the lower the demand for this product. This applies for products that go together. For example, if the price of ice cream increases, then the demand for ice cream toppings will decrease. 

  • Income
A person's increase in his income will lead to an increase in demand. He would want to go for products which are of better qualities. For example, if he used to wear a RM500 secondhand watch, he would want to go for a RM1000 watch once he earns more. 

  • Expectations of future price changes
If the think the price of a product will rise in the near future, they will try to save money by buying early, which increases the demand for the product. For example, sugar.

  • Population
The higher the population, the more the demand for products. For example, if the population in a country grows rapidly, more food is demanded. 

Determinants of Supply
  • Costs of production
Every company aims to maximise their profit. Higher production costs will only decrease the profit, indirectly affecting supply. Factors affecting production costs include wages, price of raw materials, government taxes, etc. 

  • Profitability
The higher the profitability of a product, the higher the supply of the product. For example, if a farmer finds rice more profitable than durians, he will go for rice. The supply of rice will increase but the supply of durians will decrease.

  • Natural disasters
If natural disasters such as earthquakes and floods often happen, the amount of products supplied by the country will decrease. For example, many banana plantations were destroyed by the Typhoon Bopha in Phillipines on 7 December 2012. 

  • Expectations of future prices
If the price of a good is expected to rise, the supplier may reduce supply now to increase his profits in the future by increasing his supplies later. 

  • Profitability of related goods
When the supply of a product increases, the supply of its by-product will also increase. For example, when the supply of beef increases, there will be an increase in the supply of leather.

That's all for today. Hope you had fun while reading the blog post! :)

Bibliography:

Chan, Franny. Determinants of Demand. 12 December 2013 <http://staffwww.fullcoll.edu/fchan/Micro/1determinants_of_demand.htm>.

Chan, Franny. Determinants of Supply. 12 January 2013 <http://staffwww.fullcoll.edu/fchan/Micro/1determinants_of_supply.htm>.

Times of News. Official ‘national calamity’ in Philippines. 8 December 2012. 12 January 2013 <http://timesofnews.co/2012/12/09/official-national-calamity-in-philippines/>.

2 comments:

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  2. There are so many concepts related to globalization. Interesting phenomena’s and depiction. Very well explained. Helped me a lot in my academic course of Global communication. Thanks for sharing such an informative blog.

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