Factors Affecting the Demand and the Supply for Products

Factors affecting the demand and the supply for products

Demand and supply of the products and services are the two factors that are responsible for determining the price. It generally depends upon the quantity of the products consumers want to buy or the quality of products they can buy and also on dependent on the quantity of products that the firms are willing to sell in the market. There are number of factors which are affecting the demand for the products and services. The first important factor is the price of the product. The price of the product has more or less direct impact on the demand. When the price increases, automatically the demand decreases since the customers can afford only less quantity at higher prices. Similarly the income of the consumers also affects the demand. The purchasing power of the consumers will increase with the increase in their income. Demand for one product usually depends on the price of another product. When the customers buy goods and services, they will compare the price of one product with its competitor’s product and they will make a choice between them and select a cheaper product. So the demand for a product will be more when it is reasonably priced and priced lower than the lower than the competitor’s product. According to the change in the taste and preference and fashion of the customers, the demand for the products will fluctuate. People will shift their demand over time according to the fashion, and they prefer the products that are of up to date fashion. So the demand will be more for the product of their choice. Advertising of the product is another factor that affects the demand. Through advertising, the product will be made known to the customers and they will be able to know about the new and improved products available in the market and their features. The information that is passed to the people through the advertisement will boost up the demand for that particular product. Thus there is always an inverse relation ship between the price and the demand of the products. The relationship between the price and the quantity demanded is expressed through a chart.

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The relationship between the price and the quantity
Figure 1. The relationship between the price and the quantity

The chart clearly shows that the when the price increases, the quantity demanded will decline.

Many factors affect the supply of products and services. The first factor is the price of the commodities. It has got a positive relationship between each other that is when a firm supply more products at a higher price. This is because selling higher quantity of products at a higher price will increase the revenue. Cost of production of the commodities is another factor that affects its supply. If the firm’s cost of production is falling, then its supply will increase since it can sell more products at the reduced cost. Another factor that is affecting the supply is the prices of other goods. If the prices of the competitor’s product are high, then there will be more demand for our products, this will increase the supply also. The technological advancement is another factor that can contribute to the supply of the goods, if the firm is using advanced technologies for the production of the goods, and then the supply can be also increased to that extent. The positive relation ship between the price and the quantity supplied can be expressed in the form of a chart.

The positive relation ship between the price and the quantity
Figure 2. The positive relation ship between the price and the quantity

This chart shows a positive relationship between the quantity demanded and the price of the products. (Marketing Demand and Supply, Market Structure, Market Failure: How the Market Mechanism Works in a Market Economy, p.1). Demand for certain products and the factors affecting its demand can be analysed in details.

Convenience Food

Convenience food products can be defined as those products that relocate the time and activities of preparation from the user to the trader. Some examples of convenience food products include fast foods, frozen items, micro wave dishes, home delivered food etc. The main reason for boost in the demand for the convenience products is that the it takes minimum time to cook. The manufactures of such products are trying to get rid of unhealthy tag and are offering the customers many healthy options like low fat, low salt etc, so many of the convenient products are also healthy. This has automatically increased the demand for the same. The latest trend in the food consumption sector is that the people are showing an increased interest towards the consumption of convenience food products. The demand for convenience food is influenced by several factors. First of all the demand for such products are determined by increased value of time in the society. Because of this factor, the customers are more concerned about time and they want all the products to be made available in a short period. In the case of food also they want food products that could be cooked and served easily. This change took place due to the change socio-economic factors and also due to the change in the culture and lifestyle of the people. Some demographic factors like increasing number of women in the work force, both single and married have contributed to increased number of convenience food products. Yet another factor is the intensive advertisement and the promotion efforts made by the large food supply chains. This has resulted in the more attraction of the customers towards such fast foods. Most of the families are living in two incomes and there is also an increase in the growth of one adult house hold. Because of the reduction in the household size and also the increased real income have contributed to the swing in the demand of the convenience food products. In the future years also the demand for the convenience food will increase. According to a survey report, dry pasta is the leading convenience food sold. Due to various aggressive and innovative policies adopted by various companies, has increased the demand for the convenience food in the near future. (Nayga and Farooq).

Products purchased on the Internet

Internet is the most recent and excellent advancement in the fields of communication. Because of the innovation of the internet, the whole universe has reduced into a small global village.. It is also providing a huge amount of information ranging from market information, government laws and services, trade fairs etc. It is a source of entertainment and also provides services like online banking, reservations and online ticket purchasing etc. The development of e-commerce is the most important contribution of the internet to its users. People can buy goods and also transfer information across the globe through the medium of internet. It covers wide range of products that is available in the globe and the service is made available to the people at their door steps. It covers all the products ranging from household needs, technology to entertainment. The prospective for the increase of the internet users is affected mainly by two factors. One is the availability of the information provided by the businesses and also the stipulation or the demand for the goods and services from the users. The demand for the goods purchased through the internet is affected by many factors. Firstly it depends upon the number of people who are accessing the internet as a source for purchasing the goods and services. Characteristics of the potential buyers and also the uniqueness of the business that are using the internet are yet another factor that is affecting the demand for goods purchased through e-commerce. The most important factor is the procurement behavior on the internet, which means that the attitude of the people towards the e-commerce. The number of people who are accessing the internet is increasing now days. Since the main internet users are young well educated people professional people, there is likely to be a great potential of growth for e-commerce in the coming years. The number of internet providers and the quality of the service provided has also increased since there was a shift from the traditional Electronic Data Interchange system to World Wide Web. Because of this there is an increase in the trade that is taking place through the internet. The sale and purchase of the products like CDs, videos, cameras, books, and computer software are the most important trading practices that are taking place through the internet. The main characteristics that facilitate the trade are the nature of the products that is traded through the internet and also the nature of processes through which the trade is being undertaken. The ease, privacy, price and the speed through which the internet purchases can be made are the other factors that are affecting the internet users who are accessing services through e-commerce. It is convenient since it increases individual choices and there is more options for finding lowest prices. Various regulations imposed on selling helps the internet users to have a secured and better environment, which in turn increases the demand for online shopping. (Managing Information Technology in Organizations in the New Millennium, p.246).

Film and cameras

There is a huge shift in the camera technology from the traditional models to the digital cameras. There is an increased need for the digital cameras now a day. So many of the mobile companies has integrated camera along with the mobile phones. Many of the internet users are into this market by offering services of digital camera. The sales of digital camera have touched its heights. Because of the growth in the digital cameras and printers, the film processing has slowed down and in turn its sales have turned negative. The film processing is not making a big contribution in the market and is almost stagnant. The use of the digital camera and its demand is dependent on so many factors. The most important factor is the trend in the younger generation to share their photos and videos through the internet and other sources. The personalized photo is the recent trend in the market and the digital camera providers are providing so many advanced options for the users so that the people will get attracted to them. But it is predicted that the use of the digital camera will come to a stand still soon. Because of the increase in the competition in the industry since online printing options are increasing. It also offers printing services and other products. Through this also photos can be submitted online and also they offer many personalized products also to attract the customers. So the demand for camera will be affected by factors like competition from the mobile users who are incorporating digital camera and printing options along with it. The online companies also reduce the use of digital camera since they also provide so many options for the users. But this will never replace the demand for professional cameras. Taste and preference of the customers is another factor that is contributing to the demand for the digital cameras. Advancement in the technology also affects the digital camera market. The market for the digital camera has reached a maturity phase and so the in future the demand for them will decline and later there will reach a saturated stage. (Trends in Camera Technology Force Retails to Retool Business).

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Video (VHS) rented from retail outlets

In the early years, the people were entirely depended on the retail outlets for accessing videos and movies. But now the situation has changed because of the increase in the competition from the cable television and high speed internet access. The introduction of digital technologies is another factor that is affecting the demand for the videos rented. All these advanced technologies is offering many customized services to its customers like straight release and home viewing entertainment such as direct broad cast satellite. The demand for the video rented from the retail outlets are decreasing slowly due to the decrease in the rental of the videos. The people are now accessing the videos through the online multimedia sources, and because of the existing video retail outlets are forced to lend the videos at a much lower rate. This situation will last in the coming years also and so the future trends of the video rented through the retail outlet is dawdling down. The internet is providing an unlimited variety of service to its users. To access the internet some technical

knowledge and also patience is needed. Another factor that is affecting the demand is the accessibility of free and plagiarized latest videos and movies on the internet. Now many companies are launching the original videos at low cost. This has also affected the demand of rented videos. All these factors have led to the decline in the demand for the rented videos and this trend will continue in the future also. Another is an internal factor like the contractual relationship with the video stores and their suppliers. Thus the alterations in the video industry supply chain and high competition in the home entertainment sector has contributed to a considerable reshuffle in the industry. (Seim).

Pay-per-view television programming

Per page view is a system which helps the television viewers to purchase the events that can be watched through the television and pay for it. The same event shown to every one who is ordering it. It is just opposite of video on demand services, which allows the viewers to allow the viewers to view the event they demanded at any time. In per page view system, the events are purchased through programmed television system or customer service agent. The future of the pay per view broad casting services is not excellent since there is every possibility for it to decline. Various factors affect its demand. First thing is the change in the attitude of the people towards it. Because of this the number of registered users who are accessing the service has declined. Another factor is competition from other service providers who are offering high quality digital and multi channel services at low cost. The competitors offer triple play services which include telephone, broadband and broad casting. Because of the heavy competition, the per pay view satellite providers were unable to cope up with the competition and they are in a with-drawing stage. Therefore the demand is also gradually decreasing. (Factors That Will be Affecting the Demand and Supply of a Given Number of Products).

Factors affecting supply:

Crude Oil

Crude oil is by far the most important commodity that is used for energy production in the world today. This will remain so until viable alternative sources of energy are used. But this does not appear to be the case because unconventional and renewable sources of energy have limitations in terms of cost, practicality and availability. Hence, the demand for crude oil will only increase in the years to come.

The most important factor about crude oil about its supply is that it is non-renewable. Though there is no immediate threat of the world oil reserves being wiped out in the coming several years, there is every chance that oil producing countries may control its supplies to make it last longer. There is a paradox here because economics say that supply should increase when demand increase. There is also enough crude oil available to meet this demand. But it is the fear of depletion of their reserves too quickly that is forcing oil producing countries to control its supply. The following chart will show the relationship between discovering oil reserves that the demand for the product. It can be seen that the discovery of new wells and reserves peaked during the 1950s and 1960s and has been declining steadily since then. Demand for crude oil has been always increasing (Zitter and Schindler, p.7).

Crude oil +NGL / Condensate
Figure 3. Crude oil +NGL / Condensate

The oil demand has been steadily increasing. The rate has increased drastically by the mid 1960’s has maintained the momentum till now. Many experts fear that the estimates of oil reserves may be exaggerated and that many countries do not have the calculate reserves. (The Perfect Storm).

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May other factors will also affect the supply of crude oil; some of them may be short term while others may take longer. Natural disasters in an area of oil production may temporarily disrupt oil supply as in the case of Hurricane Katrina. Many oil fields in the path of the storm shut down for safety reasons, though only for a short period. Trade embargos and sanctions can also affect crude oil supply. An example would the sanctions on export of oil on Iraq after it invades Kuwait. A producing country may also have sanctions on exporting to an importing nation. Drying up of existing wells and fall in production will also affect supplies. Wars and other forms of conflict can also affect supply especially if it affects an oil producing country. The Middle East conflict is an example. Geographical distances from production centres may also affect supply to a certain extent.

The scenario is that oil demand continue to grow whereas supplies will most likely remain stagnant (or steady) due to the reasons given above (the main one being the fear of quick depletion of resources due to demand).

Hotel rooms

The demand for hotel rooms in a country will depend on the number of travellers arriving at that destination. Unless there is a continuously strong occupancy rates, the supply is bound to remain stagnant. One factor is that hotels take time to build unlike other products. They are also require a much higher comparative investment. For example, high demand for cars can be offset by increasing its production capacity. This is not the case with hotel rooms. Once built it is not practical to pull it down either. Hence, a forecast for continued increase in occupancy is required for the supply of hotel rooms to increase. The situation in select cities in India is an example where demand outstrips supply. This will result in building additions or the construction of new hotels. The business edition of one of the leading newspapers in India says that “Bangalore is projected to have a 225 per cent increase in demand for hotel rooms during 2006-08.” (Demand to outstrip supply of hotel rooms: study, The Financial Express, 2008). (Demand to Outstrip Supply of Hotel Rooms: Study). In London, though occupancy rates are high (near to 80%), there is no indication of a surge in demand soon. “With consumers becoming more price conscious, it will be difficult for hoteliers to increase average achieved room rate (AARR), and with good occupancy levels already being achieved, demand only has room to grow slightly.” (UK Hotel Sector Well Positioned for Challenging 2008 Says PKF Report).

Marginal increase of around 4%.
Figure 4. Marginal increase of around 4%.

(Hotel Room Rates Rise Globally). The figure shows only a marginal increase of around 4%. The above-mentioned report says that budget hotels have a higher chance for growth which could indicate that an increase in supply will happen in that sector only.

Some of the factors that affect the supply of hotel rooms are given below. The level of tourism in a particular place will affect the supply of hotel rooms. If it is a newly found place, the supply will be much higher. The level of investment and growth of an economy will also affect supply. In a recessionary trend, the supply will remain stagnant with many rooms remaining unoccupied. One single factor that will affect the supply of hotel rooms is the holding of an international event like the Olympics. If a host city makes a successful bid, the supply is bound to increase.

Fast food outlets in emerging markets

A review of the literature indicates that fast food outlets are extremely popular in emerging markets. It is a fact that demand for a product will result in increased supply. A study by ACNielsen shows that many Asian countries are among the top markets in the world. India which is an emerging economy holds a seventh place among all markets in the world. (Survey Puts India Among Top Markets for Fast Food).

But there are some factors that will affect the supply of fast food outlets in emerging markets. Fast food outlets are mostly dominated by multi-national companies from the US and to a certain extent by the UK. Even European favorites like pizza are being marketed by such companies. The main factor that regulates supplies is the host country’s rules and regulations in allowing such companies to operate there. Another factor that may help in growing supply is the exposure of such foods through TV and the internet. Even if an outlet is not available at a particular point in time, the local population may have had a lot of exposure to foods like hot dogs and pizzas. This was why Kentucky Fried Chicken and Pizza Hut became popular in India even if they came into the country in the last decade.

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There are two other health-related factors that may affect the supply of such outlets. Fast foods are known for their taste as well as the bad health they promote. Regulations as to what can be sold (with regard to health) will affect its supply in a given market. Consumer awareness of health can also play a part in affecting supply.

Many fast food items contain ingredients that may not be available in the local market. If free trade is possible in the host country, such ingredients can be imported. But if it is not possible, its supply will be negatively affected. What most companies do in such situations is to adapt the ingredients to include local flavors and products.

Local tastes are also another factor that may positively or negatively affect supply. A population that does not like the flavor of cheese may not accept pizzas or similar items. Religious beliefs may also have a negative effect on the supply of fast food outlets. For example, beef is considered to be taboo in most parts of India. Any fast food item that uses beef or pork (in Muslim countries) will not be able to supply the ingredient.

Fast food outlets are usually found in metropolitan areas. This is especially true in the case of emerging markets. But the land will be at a premium in such places and companies may have to pay a high price or rent to have an outlet in a prime location. This will increase its investment and a result may affect the overall profitability. Fast-food chains will usually have a uniform pricing policy and the high initial investment can affect an outlets’ profitability.

Most reputed fast food outlets have their own hygiene and cleanliness policies. Such policies will only add to the cost of the products sold. This may make its products unattractive when compared to local delicacies found in emerging markets.

Even though there are many factors that may negatively affect the supply of fast food outlets, the emerging markets are not affected by all these. They have a rising middle class, high exposure to such items through TV, the internet, and Hollywood movies. The younger generation is also willing to experiment with tastes. All indications show that this segment will continue to grow and its supply will increase as time goes by. This will hold well for at least five to ten years. By that time, a high level of health awareness may bring down its demand and supply.

Credit cards issued by financial institutions

Another area of high demand is the credit cards issued by various financial institutions in a country are the credit cards. Even though debit cards are also popular, credit cards are more sought after by consumers. This is because a debit card does not allow a customer to buy goods on credit whereas a credit card does (up to certain predetermined limits). In a growing economy and also in developed economies, the level of surplus money is abundant. In such a case the usage of credit cards will be high. Customers may make purchases which they really do not need since they can be paid for in installments. The level of the health of an economy and the availability of surplus cash with customers is the major factor that will affect the supply of credit cards.

The banking industry in any country tends to be tightly controlled or at the least closely monitored by the central bank and the government. In terms of inflation, the policy will be changed to make credit more costly. This might affect the supply of credit cards since purchases on credit may come down.

The policies followed by individual financial institutions will also affect the supply of credit cards. It will depend on the type of conditions that accompany the issue of a card. Many banks require a customer to show some proof of income before a card can be issued. They include a salary slip, receipt of income tax paid, or any other believable proof of income. There are many emerging and underdeveloped countries where agriculture may not be taxed at certain levels of income. (Transforming and Urbanized Countries are Protecting Agriculture More).

Such countries will primarily be agrarian economies where farmers will not be able to show any proof of income. Supply will be low in such cases due to the financial institution’s policies.

The supply of credit cards will only rise since levels of income across the world are rising and meet the criteria fixed by financial institutions. The only factor that may negatively affect growth is the health of the economy. The current global slowdown of the economy is an example. In such cases, the demand for credit decreases resulting in falling supplies as well. The acceptance of credit cards by merchant establishments as a mode of payment will also affect supply. If most of the establishments accept cards, their usage will be more and will result in increased supply. The reverse will be true if only a few establishments accept cards.

Laptop computers

Laptop computers were once considered to be luxury items since they were prohibitively expensive in the eyes of the middle-income group. But things have changed for the better and the laptop now is only marginally more costly than a PC. High levels of competition and new technologies have made the price cut possible. As with any product, demand will naturally increase supply. Some of the factors that affect laptop supply other than demand are given here. One factor is that many components in laptops and PCs are manufactured by OEM suppliers. The quality and quality qualities of such OEM in a given market will directly affect the supply of laptops. If free trade is also not allowed then the supply will be affected even more. Another factor is that most of the manufacturers have their production facilities in emerging markets like China and India. “Top-selling notebook brands such as Dell, HP, Apple, and Compaq are all based in the United States, but the computers themselves — like most consumer electronics these days — are manufactured half a world away in China”. (WP Carey).

They get quality work done at much cheaper rates than what is found in developed economies. If this supply chain is affected in one way or the other, the supply will also be negatively affected. Probable trade or outsourcing restrictions in the home country will also negatively affect supply.

The laptop which is a part of the IT industry is one that is dominated by research and technology. New technologies are being developed. New technology may make a particular type of laptop obsolete. OEM manufacturers will stop making parts for that type of product which will greatly affect supply. An example would be the computer chip. When the Pentium was introduced demand for x486 chips fell because Intel stopped making them. The supply of x486 based laptops came to a complete stop within a few months.

The supply of laptops will continue to grow in the coming years. New technology will generally result in all components of the supply chain adjusting to the change. Newer and faster laptops will be supplied. On the whole only the technology will change and not the demand and supply.

Works Cited

  1. Cohen, Dave. The Perfect Storm. ASPO USA: Association for the Study of peak Oil and Gas USA. 2007. Web.
  2. Factors That Will be Affecting the Demand and Supply of a Given Number of Products. Scribd: Publish to Millions Share with friends Search Billions of Words. 2008. Web.
  3. Hotel Room Rates Rise Globally. HRG. 2007.
  4. Marketing Demand and Supply, Market Structure, Market Failure: How the Market Mechanism Works in a Market Economy. Bizcovering. 2007.
  5. Nayga, Rodolfo M., and Farooq, Zafar. Consumption of Convenience Meat Products: Results from an Exploratory New Jersey Survey. Journal Of Food Distribution Research. 1995. Web.
  6. Seim, Katja. Spatial Differentiation and the Market Structure: The Video Retail Industry. 2001.
  7. Survey Puts India Among Top Markets for Fast Food. Business Line: Internet Edition. 2005. Web.
  8. Trends in Camera Technology Force Retails to Retool Business. PressDemocrat.com. 2008.
  9. W P Carey. Take Note: Laptop Supply Chain is Not What You’d Expect. Knowledge: Supply Chain Management. 2006.
  10. Zitter, Werner., and Schindler, Jorg. Crude Oil: The Supply Outlook. Energy Watch Group. 2007.
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