MARKET SUPPLY - FACTORS INFLUENCING DEMANDS AND SUPPLY

Market supply
Market supply of a product can be found by adding together the supply by all the suppliers of that Product. For example five producers of cheese each produce 20 kilos a day. Their individual supply is 20
Kilos each, the market supply is 100 kilos.

Source

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Equilibrium in the market occurs where there is a balance between the price and quantity demanded by buyers and the price and quantity offered by suppliers. The quantity supplied equals the quantity demanded and there is no shortage or wastage. In economic terms we can say this is an efficient allocation of resources.

If we create a graph showing both the demand and supply curves for a product, equilibrium will occur where the demand curve and the supply curve intersect. At this intersection, which is where the two lines cross over, the quantity
demanded and quantity supplied are equal. At this point consumers are willing to pay the price that suppliers charge for their products.

Factors influencing the demand for a product

Various factors influence the quantity that buyers demand and the price they are prepared to pay for a product

Income

Suppose after a performance appraisal at work Mr Salami got a promotion and an increase in salary. This means that the Salami family can now afford to buy more loaves of bread at any price level. They
may also decide to buy less bread and more fresh vegetables. An increase in income may lead to an increase in demand for one good but a decrease in demand for another good.

Taste and preferences

After an article appeared in a local newspaper, which found that some butcheries were mixing beef meat with donkey meat, the Salami family decided not to buy beef meat and to buy fish or pork instead. This changed their demand for beef

Price of substitutes

There is a direct relationship between the change in the price of one product and the amount demanded of another product, which can be used as a substitute, For example margarine and butter can be used as substitutes tor each other. Going
back to our example of meat and choosing fish as a substitute, this means that if fish is cheaper the Salami family is going to consume more fish and less meat.

Price of complementay

A complementary good is one used together with another, for example bread and butter, car and fuel. A change in the price of the one product also changes the quantity demanded of the other product. For example an increase in the price of
petrol will negatively affect the demand for large engine cars that consume a lot of fuel.

Size of the market

There is direct relationship between changes in the Size of the market and the change in the demand for a good. As more people enter a market so the demand for a product grows (and the market Iand demands curve grows)

Factors influencing supply

Certain factors can cause a change in the quantity and price that suppliers will be willing to supply of a product:

Changes in input costs

It input costs increased then suppliers will pass this onto consumers as increased prices. Examples of input costs are labour rates, raw materials, petrol prices or stocks. For example if rain causes the wheat harvest to be bad then shortages will increase the price of wheat and bread prices will rise.

Changes in competition or new business entering the market

If new suppliers enter a market, this will increase the quantity supplied of a product and lower the price. For example, Chinas exports to certain markets has lowered the price of some products,
such as clothing.

Changes in the price of substitutes in
production

If a cheaper substitute can be found for a production input, this will allow suppliers to lower the price they are willing to supply at. For example if a book printing business finds a cheaper source of paper.

Changes in the supply of production factors such as labour

A scarcity of a supply factor will raise the price of that factor. For example a shortage of dentists will mean that dentists can charge more for their services.