Factors Affecting Demand And Supply - SS2 Economics Lesson Note

There are several factors that can affect the demand and supply of a good or service in the market. Some of these factors are:

Factors Affecting Demand:

Price of the good or service: This is the most important factor that affects the demand for a product or service. Generally, the demand for a product or service decreases when the price of the product or service increases, and vice versa.

Consumer income: A higher income level of consumers leads to increased demand for most products and services, especially those that are considered luxury items. Conversely, a decrease in income levels can lead to decreased demand.

Availability and price of substitute goods or services: Consumers may switch to cheaper or readily available substitute goods or services if the price of a particular product or service increases, leading to a decrease in demand for the original product or service.

Consumer tastes and preferences: The demand for a product or service can change based on consumer preferences and trends. For example, if people begin to prefer healthier foods, the demand for junk food may decrease.

Population size and demographics: The size and demographics of a population can affect the demand for a product or service. For instance, an aging population may demand more healthcare services, while a young population may demand more technology and entertainment services.

Advertising and marketing efforts: Effective advertising and marketing campaigns can influence consumer preferences and increase demand for a product or service.

Factors Affecting Supply:

Price of the good or service: As with demand, the price of a good or service also affects supply. Generally, the quantity of a product or service supplied increases as the price increases.

Cost of production, including wages and raw materials: Higher production costs, such as wages and raw material costs, can lead to a decrease in supply or an increase in the price of the product or service.

Technology and innovation: Technological advancements and innovations can increase the efficiency of production and decrease the cost of production, leading to an increase in supply.

Government regulations and policies: Government regulations and policies can impact the supply of a product or service. For example, environmental regulations can increase production costs, which can decrease supply.

Number of suppliers in the market: An increase in the number of suppliers can lead to an increase in supply and competition, which can result in lower prices.

Weather and natural disasters: Natural disasters or extreme weather conditions can impact the supply of a product or service, especially if production facilities are damaged or transportation is disrupted.