Managerial Economics Factors That Causes an Increase in Demand and Supply

Question:-

What are the factors that causes an increase (rightward or upward shift) in demand and supply?

Answer:-

We have described demand as the quantity of some goods that a customer is ready to buy at any price. In addition to price, this implies at least two factors influencing demand. “Will to buy” implies a willingness to buy and relies on what businessmen call tastes and desires. If you don’t want it or need it, you’re not going to purchase it. “The opportunity to buy” implies an important income. Professors are typically in a better place than students to provide accommodation and transport, since they have more money. The prices of associated goods can also have an effect on demand. For example, when you need a new car, your Ford demand will be influenced by Honda’s price. Finally, demand can be influenced by population size or composition. The more kids a family has, the bigger their clothes demand. The older a family, the more their need for auto insurance and the less their need for diapers and sweet formulas, the more the family has (Kaushik, 2016).

There are two, and only two, variables to each other, a demand curve or a supply curve that will then be protected by this module: quantity in the horizontal axis and price on the vertical axis. The presumption that no relevant financial variables except the price of the commodity shift behind a request curve or supply curve. This assumption is called ceteris paribus by economists. Every demand or supply current is based on the assumption ceteris paribus that all other products are kept equally. Economists call this assumption ceteris paribus. Therefore, if the other variables are all equal, the demand curve or supply curve is a relationship between two and two variables when not all other laws are considered equal, therefore not even the laws of supply and demand.

When we see how price changes impact demand or supply, Ceteris paribus is commonly used, but ceteris paribus may also be applied more broadly. Demand and supply in the real world rely on more than prices. For instance, the demand of a customer is dependent on the income, and the supply of a producer depends on the cost of production. How can the impact on demand or supply be measured if several factors shift simultaneously — say, price increases and income drops? We look at the changes one by one and suppose the other variables are preserved continuously. We might assume, for example, that the price rise lowers the amount buyers can purchase (if the income is not adjusted and something else that has an effect on demand) (Kaushik, 2016). Moreover, decreased income decreases the amount that customers can afford to purchase (assuming the price is unchanged and everything else that affects demand). That is the true definition of ceteris paribus inference. In this particular case, we will combine the results after evaluating each factor individually. The amount that customers purchase is dependent on two reasons: firstly on the price is higher, and secondly on lower wages.

Change in test or preference

From 1980 to 2012, Americans’ per person consumption of chicken rose from GBP 33 per year to GBP 81 per year, and the US reports beef consumption decreased from GBP 77 annually to GBP 57 per year. Agriculture Agency (USDA). Changes such as these are primarily due to taste changes that adjust the quantity of good at each price: in other words, they move the curve of demand for the good – right for chicken and left for beef.

Technology

Shifts throughout the supply curve are typically triggered by technical changes that reduce production costs. Advances in technology can increase the quality of production and thereby reduce production costs (Kaushik, 2016). The effect of technology on the supply curve is prime examples of computers, TVs and photographic equipment. A massive machine that used to cost thousands of dollars can now be bought for a few hundred dollars, including storage and processor upgrades. In this scenario, the device supply will today be considerably higher than the previous supply.

Weather

One of the main factors affecting commodity supply is the weather. Drought, hail or wind, for example, will affect the availability of a product during the growing season. The supply of crops grown in this area will decrease when the Midwestern region experiences a particularly dry time. Significant heat may cause extreme heat or dehydration in livestock, resulting in a higher loss of death, a decline in supply. In addition, the supply affects global weather.

Change in the consumption of the population

A society with more children would receive more demand for products and services like tricycle and daycare services, such as the United States in the 1960s. As the United States is expected to have by 2030, a population of relatively more elderly people has increased demand for nursing homes and auditory aids. Changes in population size can also impact housing demand and many other products. Each of these demand shifts will be illustrated as a shift in the demand curve.

Research and Media

Findings from research and media outlets can also impact demand. If research results are published and widely distributed to the public, the market for such products could have a significant effect. For instance, if a study that is well documented indicates that the risk of heart disease rises 50% by six ounces of beef per day, the research would likely have a major effect on beef demand (Kaushik, 2016).

Government policies

The market for commodities also affects government policies and activities. For instance, take ethanol. In order to minimise carbon emissions, if the government demands that the fuel contain a certain amount of ethanol, the demand for maise is to increase in order for the government to comply. In addition, the government can raise demand by acting as a consumer and buying agricultural products. Excessive grain inventory and surplus milk have in the past been procured by the government in the case of a national emergency, to dehydrate and to convert to powdered milk.

International market

The demand for US goods affects foreign markets. More agricultural products are produced in the US than the country can consume, which produces a surplus each year. This enables the United States to export a proportion of its production abroad. Trade deals are negotiating, and demand for US goods is growing (Kaushik, 2016).

Disease

An outbreak of disease will diminish livestock supplies. In recent history, the United States has had outbreaks involving pork and poultry supplies. For example, the Avian flu outbreak reduced the supply of hens laying significantly. In the domestic supply of livestock, the disease may have a significant effect.