The supply and demand of a good or service is affected by certain market forces or factors in the economy. Many micro economists have come up with theories that help determine the market forces that influence the demand and supply of commodities in the economy. In a lay man’s language, supply is defined as the amount of goods the sellers are able to supply and sell while demand is defined as the amount of goods and services buyers are willing and able to purchase. These two theories are affected by economic factors which influence the elasticity of the demand and supply curves. The theories of supply and demand help economists understand why the buyers and sellers behave the way they do. This theory also helps economists understand the factors that affect the availability and price of goods in the market. It is important to understand the market forces behind the supply and demand of goods so that micro economists can help determine the solution to economic problems and advice people on the next step to take to handle economic challenges. The market forces of supply and demand are the economic factors which influence the buying and selling ability of both the sellers and buyers (Ireland, 2013) .
The supply of a good in the market is determined by many factors in the economy. One of the factors that affect the supply of a good by sellers is the price. When the prices increases, the suppliers tend to increase the supply of that good so as to increase their earnings (Economics help, 2016) . Increase in the price of a good motivates the suppliers to sell more of that good to increase their profits. When the price of a good goes down, the sellers withdraw from selling the good to avoid making losses. When the cost of production of a good goes down, sellers and suppliers increase its supply significantly. When the cost of production of a product goes up, its supply will go down. This is because the good can be produced or bought at a cheaper price which will increase the profits of the sellers. For example, when the cost of raw materials and wages go down, the sellers will produce the product at a lower price and hence increase their earnings. When the competition increases on the side of production, the supply of a product goes up. The supply of a product is low if only one or a few producers are producing the product. In case other investors and producers decide to compete with these producers, the supply of this product goes up. When producers decide to withdraw from producing a certain good, the supply of this product is affected and hence goes down.
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Climatic conditions such as drought, floods, hurricanes and natural calamities such as earthquakes affect the supply of agricultural products. During droughts, agricultural products do not grow well and this reduces its supply in the market and vice versa (Economics help, 2016) . Natural calamities such as hurricanes, floods and earthquakes affect the supply of these products. For example, floods and hurricanes sweep away the farm products therefore reducing their supply. When these climatic conditions are not experienced, the supply of farm products increases. Technology is also an important market force that affects the supply of a product. When the technology of producing a good is improved, its supply increases significantly. This because the producer will produce many products and consume less time unlike when the products were produced manually or with obsolete technology. Transportation is also a market force which increases or decreases the supply of a product. Poor transport infrastructure will limit or slow down the supply of a product from the factory to the market. Good transport facilities encourage the supply of a product because it will reach the market on time. For example, farm products require to reach the market on time and when fresh. If the transport facilities are poor, these products will perish and reduce their supply. Government policies such as fiscal policy, tax and excise duties and subsidies have a great influence on the supply of a product. If the government increases the tax and excise duty imposed on a product, the sellers and suppliers will shy away from supplying the product as its cost will go up. If the tax goes down, the cost of purchasing the product will go down and the sellers will increase its supply.
Demand of a product is the ability and willingness of the buyers to purchase a certain product. There are many market forces in the economy which determine the amount of a product a buyer is able and willing to purchase at a given time (Chan, n.d.) . One of the main market forces which determine the demand of a product is the price of that commodity. When the price goes up, buyers purchase less of a product compared to when the price of this product goes down. When the price goes down, buyers will purchase more of the product and keep it for the time when the price will increase. The income of a buyer also affects the demand of a product. When the income of the buyer goes up, the buyer will increase the demand for the normal goods. If the income of the buyer decreases, the buyer will decrease the demand of the normal goods because their buying ability will have gone down.
The taste and preference of the consumers has an effect on the demand of a product (Chan, n.d.) . When the consumer’s preference shifts from one product to the other, the demand of the first product goes down and the demand of the second product goes up. The price of the complementary goods and supplementary goods determine the demand of a product. Supplementary goods are those can be used instead of another product while complementary goods are those that are used together. For example, bread and margarine are complementary goods while coffee and tea can supplement each other. When the price of margarine goes up, the demand of bread is likely to go down. Additionally, when the price of coffee goes up, people will shift their preference to tea and hence increase the demand of tea. The future expectations of increase or decrease of the price of a product affects the current demand of a product. If consumers expect the price of a commodity to go down in future, they will reduce the purchase of this product and wait to buy it when the price goes down. This is the same case where the current demand of a product goes up if the consumers expect a rise of price in future.
The supply and demand are the most important theories in economics. There are several market forces in the economy which affect the supply and demand of a product. Supply of a product is the amount of goods suppliers and sellers are able to bring into the market at a given time. The demand of a product is the willingness and ability of buyers to purchase a product at a given time. Supply is determined by several market forces such as the government policies which increase or reduce the price of a product. When the price of a commodity goes up, suppliers and sellers will shy away from supplying the product because their profits will go down. Poor transport facilities negatively affect the supply of a product because it will not reach the consumers on time. When the transport network is good, the supply of a product will increase. The demand of a product is determined by its price in the market. When the price of a product goes up, consumers will reduce their buying power and when the price goes down, the demand of the product will go up. The market forces of supply and demand determine the price and the availability of a product.
Ireland, P. (2013). Lecture Notes on Macroecomics Principles (1st ed., pp. 1-7). Boston. Retrieved from http://irelandp.com/ec132/notes/ch04.pdf
Economics help,. (2016). Factors affecting Supply | Economics Help . Economicshelp.org . Retrieved 21 February 2017, from
Chan, F. DETERMINANTS OF DEMAND . Stafffullcoll.edu . Retrieved 21 February 2017, from http://staffwww.fullcoll.edu/fchan/macro/1determinants_of_demand.htm