Supply and Demand and Factors Affecting Supply and Demand

Supply and Demand are the two major forces influencing the markets and economic conditions of any country. The whole economy is based on the interactions of these two major factors. They are closely interrelated with one another, and changes in one can drastically influence the other.

Supply and Demand: Meaning and Significance

Supply and demand denote the activities of producing or procuring goods or services and making them available to the market for sale on one hand, and the requirements or demands placed by potential buyers of those goods and services on the other hand. Each demand requires a supply, and each supply should find a demand. This chain of supply and demand is a never-ending process that determines market conditions at any particular place or time.

Understanding Supply and Demand
As you already know, supply is the quantity available in the market at a particular price that buyers may be willing to pay.

But, normally, any stock of goods in a market can be considered as supply, regardless of their price variations and quality variations. This is because they are potentially saleable at any time.

Demand refers to the want of customers who are intending to buy goods. They have the money and want to buy goods using that money.

Definition of Supply

Economically, supply can be defined as the quantity of any product that a seller offers for sale at a particular price at a particular time or within a given period of time. 

So, it is not the simple availability of commodities but the willingness of suppliers to sell that matters. If a supplier is not willing to sell his product, it can't be treated as an available supply.

Factors Influencing Supply

Some of the important factors affecting supply are as follows:

• Price: It is an important factor that influences the quantity supplied in any market. Producers of goods and services often try to sell their products at the highest possible prices, and they tend to increase supply when prices are high and reduce it when prices are low. This may sometimes lead to hoarding and black marketeering of goods, which will be discussed later.
• Cost of Inputs: is also a major deciding factor in determining the supplies available at any point in time or place. If the cost of inputs in producing the goods is low, they will be produced in large quantities. As a result, supplies will also increase drastically. Otherwise, when inputs are expensive, production and supply will be lower.
• Prices of Related Goods: can also affect the supply of a particular good. If the supplier deals in two or more goods and finds out that certain other goods he is dealing with are more profitable, then he may reduce the supply of the less profitable item and increase the supply of more profitable items to earn more income.
• Demand also controls supplies. Excessive demand will automatically require more and more supply. If there is a decrease in demand, naturally, the supply of that good will get restricted or decreased.
• Competition in markets influences your supplies. When there are many choices of alternative goods that satisfy the same need, buyers can shift to low-priced goods, and your goods will not be demanded. So, you will be forced to decrease your supply.
• Tastes and Likes: of consumers or potential buyers can also influence the supply of goods and services. If people like a particular product or brand and are willing to pay more to obtain it, then the supply of that product needs to be increased in the markets to meet their requirements. So, consumers' tastes and preferences will definitely give rise to more supply of those products in the market.
• Technology also plays some role in determining the supply. Use of advanced technology in production methods facilitates increased production at reduced costs and thereby makes more supply available at reasonable prices.
• Government interference can also affect supply to a large extent. Government policies may restrict production and supply of certain products by banning those items or imposing heavy duties and taxes.

Demand 

Demand occurs whenever a need is felt for procuring goods or services. Wants create demand, and you try to satisfy those wants by procuring goods and services.

But you should note that every want may not necessarily create demand. It depends on some circumstances.

Definition of Demand

Demand can be defined as the quantity of products demanded and bought by customers or potential buyers at a particular price through a given period. It is the demand backed by the purchasing power of the person demanding it. A simple want or desire is not a demand.

Factors Affecting Demand

Some of the important factors influencing demand are discussed below.

• Abundance: Certain varieties of goods and services can stimulate demand if they are available in abundance as compared to those in short supply. For example, if you put up stalls at roadside or at exhibition grounds, people will flock in to buy the goods.
• Price Factor: Price controls demand for goods. Cheaper goods attract more demand as compared to highly priced goods and services.
• Changes in Tastes: One's taste in goods can shift the demand from one type of good to another one.
• Prices of Related Goods: Substitutes and complementary goods can affect the demand for original goods or services. You can easily shift to cheaper substitutes or quality goods.
• Advertisement and Media: Product advertisements and articles can inspire changes in consumer behaviour and thereby shift in demand.
• Income of Consumers: The potential customer's income plays a good role in controlling their demand for goods as they have to adjust their consumption according to their income.
• Climate conditions or seasonal changes also affect demand. During summer, people like to wear cotton clothes, whereas in winter they need woollen clothes. Demand for raincoats and umbrellas can increase too much.
• Economic instability of the country can also lead to many deviations in demand for goods due to fear of price rises or short supplies.
• An increase in population can also affect demand as there will be more buyers for the same quantity of supply.