Question

Explain the main determinants of demand and supply in a market.

Answer 1

The main determinants of demand are:

-- The price of the good or service: When prices rise, the quantity of demand decreases. Similarly when prices fall, demand increases

--Prices of complementary or substitutes of the good or service: These are either substitutes (purchased instead of) or complementary (purchased along with), thus impacts the demand

-- Tastes, emotions or preferences of consumers: When the buyer's emotions, desires or preferences change in favor of a product, thus impact the quantity demanded.

--Buyer's income: When income increases, thus the quantity demanded also rises. When income falls, so demand decreases.

-- Expectation of consumer: When consumer expects that the value of something will increase, they demand more of it.

--Number of buyers in the market: When more buyers enter the market, demand rises and when there are less buyers, demand falls

The main determinants of supply are:

--Price: If the price of a product rises, then the supply of the product also rises and vice versa

-- Cost of Production: The cost of production and supply of a product are inversely related to each other

--Natural Conditions: The climatic conditions also influence the supply of certain products.

--Technology: An improved technology increases the production of a product, thus leads to an increase in the supply of the product

--Transport Conditions: The better transport facilities increase the products supply

-- Factor Prices and their Availability: When factors are available at lower price in sufficient quantity then there would be a rise in production.

-- Government’s Policies: The government policies such as fiscal policy and industrial policy, has a big influence on the supply of a product

--Prices of complementary or substitutes of the good or service: These are either substitutes (purchased instead of) or complementary (purchased along with), thus impacts the supply