Determinants of Demand and Supply PPT -FIM

This slide tells us about the determinants of demand and supply

1. Dr A.Sangeetha Assistant Professor Sri Ramakrishna College of Arts & Science

2. Introduction : Determinats of Demand & Supply The determinants of demand and supply are factors that influence the quantity of a good or service that consumers are willing to buy and the quantity that producers are willing to sell at a given price. Understanding these determinants is crucial in economics as they help explain changes in market conditions and prices. Here are the main determinants of demand and supply.

3. Determinants of Demand: Price of the Good: The most basic determinant of demand is the price of the good itself. Generally, there is an inverse relationship between price and quantity demanded, meaning as the price of a good increases, the quantity demanded decreases, and vice versa. Income: The income of consumers affects their purchasing power. For normal goods, as income increases, demand also increases. For inferior goods, as income increases, demand decreases.

4. Tastes and Preferences: Consumer preferences and tastes greatly impact demand. A product that becomes more popular will see an increase in demand, even if its price remains constant. Number of Consumers: The total number of consumers in the market can influence demand. An increase in the number of consumers can lead to an increase in demand, and a decrease in the number of consumers can lead to a decrease in demand . Expectations: Expectations of future prices or changes in income can affect current demand. For example, if consumers expect the price of a good to rise in the future, they may buy more of it now, increasing current demand.

5. Price of Related Goods: The demand for a good can be influenced by the prices of related goods. Substitute Goods: An increase in the price of a substitute will lead to an increase in demand for the original good. Complementary Goods: An increase in the price of a complementary good will lead to a decrease in demand for the original good.

6. Determinants of Supply: Price of the Good: Like demand, the price of the good is also the most direct determinant of supply. Generally, there is a direct relationship between the price of a good and the quantity supplied; as the price increases, the quantity supplied increases. Cost of Production: The cost of producing a good, including factors like labor, materials, and technology, affects the willingness of producers to supply the product. If production costs increase, producers may reduce supply. Technology: Technological advancements can increase production efficiency, reducing costs and increasing the supply of a good.

7. Resource Prices: The prices of inputs such as labor, raw materials, and energy can impact production costs and, in turn, supply. If resource prices rise, supply may decrease. Number of Suppliers: The total number of producers in the market can affect supply. An increase in the number of suppliers can lead to an increase in supply, and a decrease in the number of suppliers can lead to a decrease in supply. Government Policies and Regulations: Government policies such as taxes, subsidies, and regulations can impact the cost of production and the willingness of producers to supply goods.

8. Expectations: Producers' expectations about future prices can influence current supply decisions. If producers expect higher prices in the future, they may reduce current supply. Natural Events and Disasters: Natural events such as hurricanes, earthquakes, or droughts can disrupt production and affect supply. Conclusion : Understanding how these determinants interact in a market helps economists and businesses predict and respond to changes in supply and demand, ultimately influencing prices and market outcomes.