The Nature of Demand & The Nature of Supply

-


 

The Nature of Demand

Demand is the quantity of a good or service that people are willing to buy at various prices. The higher the price, the lower the quantity demanded, and vice versa. A graph of this relationship is called a demand curve.

Let’s assume you own a store that sells jackets for snowboarders. From past experience, you know how many jackets you can sell at different prices. The demand curve in Exhibit 1.6 depicts this information. The x-axis (horizontal axis) shows the quantity of jackets, and the y-axis (vertical axis) shows the related price of those jackets. For example, at a price of $100, customers will buy (demand) 600 snowboard jackets.

In the graph, the demand curve slopes downward and to the right because as the price falls, people will want to buy more jackets. Some people who were not going to buy a jacket will purchase one at the lower price.

Also, some snowboarders who already have a jacket will buy a second one. The graph also shows that if you put a large number of jackets on the market, you will have to reduce the price to sell all of them. Understanding demand is critical to businesses. Demand tells you how much you can sell and at what price—in other words, how much money the firm will earn to cover costs and hopefully earn a profit. Gauging demand is difficult even for large corporations, but particularly for small firms.

 



The Nature of Supply

Demand alone is not enough to explain how the market sets prices. We must also look at supply, the quantity of a good or service that businesses will make available at various prices. The higher the price, the greater the number of jackets a supplier will supply, and vice versa. A graph of the relationship between various prices and the quantities a business will supply is a supply curve.

We can again plot the quantity of jackets on the x-axis and the price on the y-axis. As Exhibit 1.7 shows, 800 jackets will be available at a price of $100. Note that the supply curve slopes upward and to the right, the opposite of the demand curve. If snowboarders are willing to pay higher prices, suppliers of jackets will buy more inputs (for example, Gore-Tex® fabric, dye, machinery, labour) and produce more jackets. The quantity supplied will be greater at higher prices because manufacturers can earn higher profits.



Comments

Post a Comment

Popular posts from this blog

Stages or phases of international marketing involvement

-
Image
DEFINITION:  International Marketing is  a phase in which domestic companies have the capacity to produce goods to sell abroad on persistent basis and have the possibility to operate globally as well . Discuss the four phases of international marketing involvement. The levels of involvement are not same for all the firms. It varies from firms to firms depending upon its internal and external factors. Internal factors are monetary and non-monetary resources and external factors are govt. policies and market potential.   After a company decides to enter into international market, it must decide the degree of marketing involvement. A firm may get itself involve in foreign marketing in any of the five following ways   (1)    No Direct foreign marketing (2) Infrequent foreign marketing, (3) Regular foreign marketing,  (4) International marketing, and    (5) Global marketing .  The level of involvement differs in every company, as it depend...
Read more

Digital marketing vs. traditional marketing

-
Image
  Digital marketing vs. traditional marketing: what’s the difference? What is digital marketing? Put simply, digital marketing is using digital channels such as websites and social media as tools for marketing communication. If you’re using social media you will be well versed in the adverts that pop up in your stream—that’s digital marketing. What is traditional marketing? Traditional marketing on the other hand involves traditional channels, like billboards and printed media. Think Don Draper in Mad Men brainstorming TV commercial ideas and copy for Coca-Cola. Up until the development of the internet in the 1990’s, traditional marketing was pretty much the only type of marketing. Difference: The main difference between digital and traditional marketing is the medium through which an audience encounters a marketing message. While traditional marketing uses traditional media like magazines and newspapers, digital marketing uses digital media, such as social media or websi...
Read more

PESTLE IN MARKETING TERMS

-
Image
  What is PESTLE? A PESTLE analysis is a tool used to gain a macro picture of an industry environment. PESTLE stands for Political, Economic, Social, Technological, Legal and Environmental factors. It allows a company to form an impression of the factors that might impact a new business or industry. Some factors will be more important to different types of businesses, and a PESTLE analysis will help identity risk factors for the SWOT analysis. Why do a PESTLE Analysis? A PESTLE analysis allows a strategic and systematic evaluation of a business's prospects, risks and opportunities in a new environment. While a SWOT analysis concentrates on a company's internal processes, PESTLE provides information on external factors. PESTLE can be used for large and small scale projects. PESTLE: POLITICAL: Political factors relate to government controls and influences over economy or industry. Government factors may be legislation or economic policies. The political en...
Read more