Factors That Affect Supply & Demand

by Lee Morgan; Updated September 26, 2017
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Supply and demand is the key to establishing the current value of a consumer product. The supply is the amount of the product that is available for purchase. Generally the less available a product is, the more the consumer will have to pay to get it. Demand is simply how much of the product the public wants to buy. If there is more demand than the manufacturer can keep up with, often the value increases. But there are several factors that influence demand and therefore call for changes in production to increase or decrease supply.

Price Fluctuations

Price fluctuations are a strong factor affecting supply and demand. When a product gets expensive enough that the average consumer no longer feels it is worth it to buy the product, then the demand declines. This leads to cuts in production that will hopefully stabilize the product’s value. Lowering the price of a product may increase demand, indicating that the public feels the product is suddenly a great value. This may also cause changes in production to increase to keep up with the demand.

Income and Credit

Changes in income level and credit availability can affect supply and demand in a major way. The housing market is a prime example of this type of impact. During a recession when there are fewer jobs available and there is less money to spend, the price of homes tends to drop. Also, the availability of credit may be less because of the average person’s inability to qualify for a loan. To help encourage those who can afford to buy, prices fall and lower interest rates appear to help boost the sales. When there is an economic boom, unemployment is very low and people are spending money readily, the price of homes and other major purchases tends to rise and so do interest rates.

Availability of Alternatives or Competition

When an alternative product hits the market, the competition between the existing product and the new one can cause the demand to drop. Just as many people may be buying the product, a large portion of them may elect to buy the alternative brand. This leads to price wars that ultimately lower the price of the product and may require a cut in supply to fall in line with the decrease in demand.

Trends

Demand rises and falls on trends in many cases. Only a few things remain a constant need for society. Even food and shelter aren’t immune to the effects of changing trends. If widespread media attention is given to the idea that eating bean sprouts is bad for you, then eventually it will affect the demand for bean sprouts. When the attention is focused on something else, the bean sprout market might rebound.

Commercial Advertising

Commercials on television, Internet and radio have an effect on supply and demand in that they make more people aware of the availability of a product. People do not buy what they don’t know is for sale. If it is an appealing ad, there is a good chance demand will increase and supply will have to follow suit.

Seasons

The seasons can affect supply and demand drastically. The supply and demand for toys peaks around Christmas, and turkey sells like crazy at Thanksgiving. Fireworks experience a boom at the Fourth of July in America. Meanwhile, it’s difficult to increase demand for bikinis in January in Minnesota.

About the Author

Lee Morgan is a fiction writer and journalist. His writing has appeared for more than 15 years in many news publications including the "Tennesseean," the "Tampa Tribune," "West Hawaii Today," the "Honolulu Star Bulletin" and the "Dickson Herald," where he was sports editor. He holds a Bachelor of Science in mass communications from Middle Tennessee State University.

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