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. 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.
Conversely, if the price declines, demand goes up.
Based on pricing, therefore, microeconomics can forecast with reasonable accuracy what a consumer may buy, and how much of that product or service will be bought.
Consumer demand — what a consumer wants and in what quantity — is called a demand curve, and may be graphically plotted in a chart, like the one below. Introduction to Supply and Demand. Another way to represent the demand curve is in a table like the example below.
The table simply shows that demand for a product, in this case an apple pie, declines as the price for it goes up. The demand curve for apple pies may change if a factor in the decision-making process changes. The demand curve for apple pies may then change, with demand falling off as demand for the cherry pies goes up.
Consumer demand for both apple pies and cherry pies will depend on this price and size relationship — cherry pies are bigger and cheaper than apple pies. For related reading, see: This "expense" or cost represents what consumers must give up to buy something — in other words, the tradeoff factor.
What a consumer gives up buying one thing and not another is the opportunity cost. Prices changes in a product or service — either up or down — will influence the opportunity cost to consumers. A steep increase in the price of coffee for a confirmed coffee drinker may not prevent that consumer from buying the same amount of coffee.
Demand may expand like a stretched rubber band — reflecting its elasticity — if the price of coffee goes down. Or demand may contract, or become inelastic, if the price goes up.
Microeconomics measures the demand elasticity for a product or service as its price changes using this formula: Other economic factors, of course, may also influence consumer buying choices. These may include the spending patterns of wealthy consumers for whom price considerations may not be as important as they are for the average consumer.
Or a consumer with an average income may be predisposed to spend more money on a product or service because of a preference for quality over price. Extraneous Factors and Marketing Consumer buying choices are also driven by psychological, cultural and social factors, all of which play a role in influencing preferences.
The convenience factor is also a major influence on consumer buying. Some consumers may prefer to buy from retailers that speak a certain language.
In some instances, these factors may be more important than considerations of price. A consumer who has had a beneficial experience with a specific brand of product or service will most likely continue to purchase it, despite increases in its price — up to a point.
Every significant development in the study of consumer decision-making — and every aspect of the process — are of great interest to the businesses community. Accurate data on some aspects of consumer buying patterns and preferences can be found in print sources and online at government and trade association websites.
Some of this data is also available from various business associations and individual firms who conduct their own surveys and research programs to develop consumer data unique to their own businesses.
The next chapter discusses how individual businesses use this data and the implied probabilities in their decision-making processes to produce profits.A rise in incomes increases the demand for normal goods such as restaurant meals, sports tickets, and necklaces while reducing the demand for inferior goods such as cabbage, turnips, and inexpensive wine.
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.
|What Factors Force a Shift in a Demand Curve? | barnweddingvt.com||Conclusion Supply and demand is perhaps one of the most fundamental concepts of economics and it is the backbone of a market economy.|
|The Factors Driving Demand and Supply||While hundreds of books have been written on the topic, it comes down to how much people want a particular product and how much of that product a company can push to market. Market Without a market, you have no supply or demand, and, therefore, no business at all, because there's no one to sell anything to.|
|Two of the most important principles used by economists are the Law of Supply and the Law of Demand: Law of Supply The law of supply says that, all other things remaining equal, as the price of a good increases decreasesthe quantity of that good supplied will increase decrease.|
a higher price causes a. Describe factors other than price that affect supply and demand Explain how shifts in both supply and demand affect equilibrium and price To unlock this lesson you must be a barnweddingvt.com Member.
Factors affecting price elasticity of demand. The number of close substitutes – the more close substitutes there are in the market, the more elastic is demand because consumers find it easy to switch.E.g.
Air travel and train travel are weak substitutes for inter-continental flights but closer substitutes for journeys of around km e.g.
between major cities in a large country. The core ideas in microeconomics. Supply, demand and equilibrium. Now that you've got the basics of the supply curve down, we'll jump into factors which shift the supply curve.. Here's the same list I showed you before of important supply barnweddingvt.comer, the most basic one is a change in costs.