The Nature Of Marketing: Demand And Supply (Copy)
3.1.2 Demand And Supply
The Factors Influencing The Demand For And Supply Of The Products Of A Business
- Demand
- Definition: The quantity of a product customers are willing and able to buy at a given price in a given period.
- Factors Affecting Demand (Determinants):
- Price Of The Product: Higher prices reduce demand (law of demand), lower prices increase demand.
- Income Of Consumers: Higher income increases demand for normal goods but reduces demand for inferior goods.
- Tastes And Preferences: Advertising, fashion, and social trends affect consumer choices.
- Price Of Related Goods:
- Substitutes: Demand rises if substitute price increases (e.g., Pepsi vs Coca-Cola).
- Complements: Demand rises if complement price decreases (e.g., petrol and cars).
- Demographics: Age, gender, population size affect demand.
- Expectations Of Future Prices: If prices are expected to rise, current demand increases.
- Seasonality: Seasonal goods like ice cream or warm clothing see fluctuating demand.
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change AS Level Business Full Scale Course
- Supply
- Definition: The quantity of a product producers are willing and able to offer for sale at a given price in a given period.
- Factors Affecting Supply:
- Price Of The Product: Higher prices encourage more supply (law of supply).
- Cost Of Production: Higher costs (wages, raw materials, energy) reduce supply.
- Technology: Advances in technology increase efficiency and supply.
- Government Policy: Taxes reduce supply; subsidies increase supply.
- Number Of Suppliers: More suppliers increase market supply.
- Weather And Natural Factors: Agriculture heavily dependent on climate.
- Expectations Of Future Prices: If prices expected to rise, suppliers may reduce current supply to sell later.
- Global Events: Wars, pandemics, or trade restrictions can reduce supply.
Interactions Between Demand, Supply And Price
- Equilibrium Price
- Determined by the point where demand equals supply.
- Known as the market-clearing price.
- Example: In competitive markets like wheat, price stabilises where demand meets supply.
- Excess Demand (Shortage)
- Occurs when demand exceeds supply at a given price.
- Leads to upward pressure on prices until equilibrium is restored.
- Example: Housing shortages increase property prices.
- Excess Supply (Surplus)
- Occurs when supply exceeds demand at a given price.
- Leads to downward pressure on prices until equilibrium is restored.
- Example: Overstock of smartphones leads to discount sales.
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change AS Level Business Full Scale Course
- Dynamic Interactions
- Price Elasticity Of Demand (PED): Sensitivity of demand to price changes influences how equilibrium is reached.
- Price Elasticity Of Supply (PES): How quickly suppliers can respond to price changes affects market stability.
- Shifts Vs Movements:
- Change in price → movement along curve.
- Change in other factors → shift of demand or supply curve.
- Examples Of Interaction
- Oil market: Sudden disruption in supply (conflict or sanctions) increases price sharply due to inelastic demand.
- Fashion industry: Seasonal shifts in demand force suppliers to adapt quickly to avoid unsold inventory.
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change AS Level Business Full Scale Course
Strategic Importance For Businesses
- Understanding demand and supply allows firms to set appropriate pricing strategies.
- Helps businesses forecast sales, plan production, and manage inventories.
- Reduces risk of overproduction or underproduction.
- Aligns marketing and production with real consumer needs.
- Example: Airlines use dynamic pricing models based on real-time demand and supply for flights.
Written and Compiled By Sir Hunain Zia, World Record Holder With 154 Total A Grades, 7 Distinctions and 11 World Records For Educate A Change AS Level Business Full Scale Course