Learn about the key factors that influence supply and demand, from price of raw materials to consumer preferences. Understand how these factors impact the economy.
When studying economics, we often encounter two terms, namely demand and supply curves.In economics, demand and supply will influence each other. Apart from these two things, various other factors also play an important role.
When prices rise, demand for the goods or services offered will decrease. This also applies when prices fall, then demand will increase. On the demand curve, the price of goods will be located on the vertical X-axis, while the amount of demand will be on the horizontal Y-axis.
Meanwhile, the supply curve is a curve that describes the relationship between the number of goods offered by producers and the price of goods on the market during a certain period of time.
10 Crucial Factors Affecting Supply and Demand You Need to Know.
Both have several factors that can influence. The following is an explanation quoted from ‘High School Economics Learning Module’ by Siti Mugi Rahayu:
Price of goods
As briefly mentioned earlier. If the price of a good goes down, then the tendency for demand for it will increase, and vice versa.
Other related items
Related goods are substitute and complementary goods. If the price of a substitute good falls, then the demand for a good will decrease and vice versa.
When the price of a complementary good falls, the demand for a good will also fall. Conversely, if the price of a complementary good rises, the demand for a good will also rise.
Income level
The higher a person’s income, the higher the demand for an item will be. For example, Bambang earns 2 million. Once he wanted to buy a cupboard for Rp1,500,000.00, then Bambang only bought 1.
This is different when Agus who earns 20 million buys the same cupboard. He can buy 13 of them.
Public taste
The more popular an item is, the more demand for it will increase.
Total population
The higher the population of an area, the higher the demand for a particular item.
Consumer predictions
The last factor that can affect demand is consumer prediction. If consumers predict that the price of a good will increase, then demand will increase.
A simple example is when there are many rumors of a war breaking out. People will hoard food or gasoline that are expected to become scarce.
Number of sellers or producers
Similar to the price of goods, the higher the seller or producer in an area, the higher the supply of related goods will be. Consider a kipo cake producing area. The more sellers, the higher the kipo offered.
Natural disasters
If a natural disaster occurs in a product producing area, the supply of that product will decrease.
Replacement item price
A brief example, when the price of tea increases, the supply of substitute goods, such as milk, will increase.
Production cost
The higher the production cost, the fewer goods offered. Included in the production costs are raw materials, employee salaries, and production process costs.
Technology advances
With more advanced technology, a manufacturer can speed up its production process. In addition, its production costs will also be educated. As a result, the goods offered will increase.
Tax
Taxes are regulations set by the government and are non-negotiable. The higher the tax, the lower the demand, and as a result, the lower the supply.
Future price estimates
In times of economic crisis, for example, a company will reduce the supply of goods X. Why? With the condition that the price of raw materials and so on increases but is not balanced by an increase in people’s income, the company will reduce the supply because it is afraid of not selling or low demand.
Well, that’s the explanation of the demand and supply curve, complete with factors that can influence it. Hopefully the explanation above can answer all detikers’ questions, yes!