Question

Select a business idea (preferably in the engineering field).
Discuss how each of the four demand determinants would affect your business.
For the same business discuss how determinants of supply will affect your business

Answer 1

Lets try to understand this with the help of capital goods company which is an engineering company in the business of manufacturing the heavy machines for infrastructure and real estate projects.

The four demand determinants will be as follows :

- Product’s own price

- End consumers demand

- End consumers Income

- End consumers preferences

The quantity of a good that consumers are willing to buy depends on a number of different variables. Perhaps the most important of those variables is the item’s own price.

In general, economists believe that as the price of a good rises, buyers will choose to buy less of it, and as its price falls, they buy more. This opinion is so nearly universal that it has come to be called the law of demand.

Although a good’s own price is important in determining consumers’ willingness to purchase it, other variables also influence that decision. Consumers’ incomes, their tastes and preferences, and the prices of other goods that serve as substitutes or complements are just a few of the other variables that influence consumers’ demand for a product or service

So for the engineering company producing the machines for real estate industry how there is demand for the houses, consumers income levels , their preferences for house ownership or rental , or prices of the alternative commodities like construction material , interest rates etc., will impact the ultimate demand.  

Similary the supply side also will be impacted by the no of competitors in the industry, new technologies, price point of the manufacturer, demand of the end products like demand in construction sector, interest rates , general state of the economy etc., All these factors will impact the company from the supply side.