the factors influencing the demand for and supply of the products of a business
📚 3.1 The Nature of Marketing – Demand and Supply
What is Demand?
Demand is the amount of a product that consumers are willing and able to buy at different prices. Think of it like a pizza shop: the more slices you offer at a lower price, the more people will order.
📈 Demand Curve: As price decreases, quantity demanded increases (and vice versa).
What is Supply?
Supply is the amount of a product that producers are willing and able to sell at different prices. Imagine the pizza shop again: if the cost of dough rises, the shop might produce fewer pizzas even if the price stays the same.
📉 Supply Curve: As price increases, quantity supplied increases (and vice versa).
Factors Influencing Demand
- Price of the product (own price)
- Prices of related goods (substitutes & complements)
- Income levels of consumers
- Consumer tastes & preferences
- Expectations about future prices & income
- Population size & demographics
- Seasonal & cultural factors
Factors Influencing Supply
- Price of the product (own price)
- Input costs (raw materials, labour, energy)
- Technology & productivity
- Number of suppliers in the market
- Government policies (taxes, subsidies, regulations)
- Weather & natural conditions (for agriculture)
- Expectations about future prices
Demand & Supply Interaction
When demand and supply curves intersect, we find the equilibrium price and equilibrium quantity.
| Price (P) | Quantity Demanded (Qd) | Quantity Supplied (Qs) |
|---|---|---|
| $10 | 80 | 20 |
| $8 | 100 | 40 |
| $6 | 120 | 60 |
| $4 | 140 | 80 |
In the table above, the equilibrium occurs where Qd = Qs (e.g., at $6, Qd = Qs = 60).
Mathematical Representation
Demand: $Q_d = a - bP$ (where a, b > 0)
Supply: $Q_s = c + dP$ (where c, d > 0)
Equilibrium: set $Q_d = Q_s$ and solve for P* and Q*.
Exam Tips & Quick Recap
Remember:
- Identify the key factors that shift the demand or supply curve.
- Use the word shift (not just movement) when a factor changes the entire curve.
- Explain how a shift in demand or supply affects equilibrium price and quantity.
- Use the demand and supply equations to show the mathematical relationship.
- When answering, structure your answer: State the factor → Explain its effect → Show the impact on equilibrium.
💡 Tip: Practice with quick scenarios: e.g., “If the price of coffee rises, what happens to the demand for tea?”
Revision
Log in to practice.