Determinants

Supply Determinants

Supply Determinants

• Labor Cost

• Technology

• Substitutes in Production

• Complements in Production

• Expectations

• Number of Sellers

Demand Determinants

• Income

• Tastes

• Substitutes in Production

• Complements in Production

• Expectations

• Number of Buyers

Income

When consumers' income increases, they are generally able to purchase more goods and services, increasing demand. Conversely, if income decreases, demand typically falls

Tastes and Preferences

Changes in consumer preferences, often driven by trends, advertising, or new information, can increase or decrease demand for specific goods

Substitutes in demand

If the price of a substitute good rises, the demand for the original good increases. For example, if the price of tea rises, the demand for coffee might increase

Complements in demand

If the price of a complementary good rises, the demand for the original good decreases. For example, if the price of printers rises, the demand for ink cartridges might decrease.

Expectations

If consumers expect prices to rise in the future, they may buy more now, increasing current demand. If they expect prices to drop, they may wait to buy, decreasing current demand.

Number of Buyers

An increase in the number of buyers in the market increases demand. For example, population growth can lead to increased demand for housing, food, and other essentials.

Input Prices

If the cost of inputs (such as raw materials, labor, or energy) rises, the supply of the good may decrease because it becomes more expensive to produce. Conversely, if input prices fall, supply may increase.

Technology

Advances in technology can make production more efficient, increasing supply. Improved technology often lowers the cost of production, allowing producers to supply more at the same price

Substitutes in Production

If the price of a good that can be produced with the same resources rises, producers may switch to producing that good, decreasing the supply of the original good

Complements in Production

If the production of one good leads to the production of another (like beef and leather), an increase in the price of one can increase the supply of the other.

Expectations

If producers expect higher prices in the future, they might reduce current supply to sell more later at higher prices. If they expect lower prices, they may increase current supply to sell more before prices drop.

Number of Sellers

An increase in the number of sellers in the market increases supply. Conversely, if some sellers exit the market, supply decreases.