Supply & Demand Analysis – Business – Aasa Technologies
Demand and supply analysis is the study of how buyers and sellers interact to determine transaction prices and quantities. Price is dependent on the interaction between market demand and supply components. Demand and supply represent consumers ‘and producers’ willingness to engage in buying and selling. An exchange of a product occurs when buyers and sellers can agree on a price.
It is an economic model of price determination in a market economy. In economics, in a competitive world, a market-driven by an invisible hand is an amazing tool. It consists of various buyers, sellers, and other economic actors who come together in one place and trade in a given good or service by reinforcing the efficient allocation of resources.
Economics is the supply and demand of goods or services. This concept of supply and demand is the basic concept that lays the foundation for the whole story in economics. Supply and demand is an economic model of pricing in a market economy.
Determinants of Supply and Demands Analysis
1. Price of the Goods:
The price of a commodity is inversely proportional to the quantity demanded. Price can be defined in terms of currency as the exchange of goods or services. Without price, there is no marketing in society. If there is no money, goods can be exchanged, but without price; That is, there is no exchange value of a product or service agreed upon in a market transaction, which is the major factor influencing sales operations.
Price can determine the success or failure of a firm. Prices are important economic regulators. The importance of value has increased with the shift from a barter economy to a money economy. Price is a primary source of revenue, which all firms strive to maximize by expanding markets.
2. Price of Complementary Goods:
A complimentary item or service is an item that is used in combination with another item or service. Generally, a supplemental good has no value when consumed alone, but when paired with another good or service, it increases the overall value of the offering. A product can be considered a supplement when it shares a beneficial relationship with another product offering, for example, an iPhone and the apps used with it.
If the price of a complement good (say petrol) increases then the demand for the good in consideration (say petrol cars) will fall.
Higher income will lead to higher demand for the good in consideration.
In business, the income effect is the change in demand for a commodity or service due to a change in the purchasing power of the consumer as a result of a change in real income. This change can be the result of an increase in wages, etc., or because the current income is freed from the decrease or increase in the price of the item on which the money is being spent.
4. Individual Preferences:
If a consumer has a higher preference for a particular good then the demand for that good will be higher irrespective of the price of that good.
Individual preferences have a central role in mainstream economic theory, not only because they can be used to explain and predict individual and group behavior, but also because they are used to evaluate the overall consequences of such behavior.
5. Future Expectations :
The current demand of a consumer will increase if he expects the future price of the good to increase and vise versa.
The buyer’s expectations regarding the future price, which is assumed to be constant when the demand curve is constructed. Buyers expectations are one of five demand determinants that change the demand curve when they change. The other four are buyer’s income, buyer’s preferences, other prices and number of buyers.
The decision to buy a commodity today depends on expectations of future prices. Buyers want to buy a good one at the lowest possible price. If they expect prices to rise in the future, they are willing to buy more right now. If buyers expect prices to drop in the future, they are more inclined to buy less now.