Reference no: EM13745681

Supply and Demand

Let's discuss the tutorial Understanding and Applying Supply and Demand. What is the difference between a change in demand versus a change in quantity demanded? A change in supply versus a change in quantity supplied? Why is it so important to differentiate between these similar-sounding terms?

Let's discuss the tutorial Understanding and Applying Supply and Demand. What is the difference between a change in demand versus a change in quantity demanded? A change in supply versus a change in quantity supplied? Why is it so important to differentiate between these similar-sounding terms?

WHAT ARE THE DETERMINANTS OF DEMAND?

Let's think about demand factors for a moment. As Chapter 3 points out, demand (i.e., a relationship depicting the quantities of output demanded at alternative prices during a given time period) is conditioned by the number of buyers in the market, consumer incomes, prices of complementary and substitute goods, and consumer expectations about the future, among other things. It is important for you to establish what impact on demand changes in these determinants of demand will engender--- doing the textbook problems will help in this regard.

It is also important for you to distinguish between a "change in demand" (or, shift in demand) versus a "change in the quantity demanded" (or, movement along a given demand).

After thinking all of this through, try to think about what influence you, as a business person, might have in impacting demand in desired directions. For example, what are some of the things that you could do to increase demand? (As it can be presumed that most businesses would want to do--it is hard to think of a context whereby a business would want to decrease the demand for its output--although there are cases when this might be appropriate.) Would it cost you anything to increase demand? What would be some of the obstacles?

Supply is the other side of the LOSAD coin. Supply factors are those that impact on a company's ability and willingness to produce a product and put it on the market for sale. A check of the supply factors in Chapter 3 shows that the number of sellers, input prices, technology, taxes and subsidies, prices of related outputs, and expectations about the future are among the most important determinants of supply.

As we did with demand, we need to distinguish between a change in supply (supply shift) and a change in the quantity supplied (movement along a given supply).

This is an important distinction for discussion purposes. Further, it is not enough to be able to simply identify the factors that affect supply. It is necessary to go beyond that and speculate what are the impacts of changes in these determinants on supply, and, ultimately, on prices. You have all been asked to think of a product that you might want to produce. How would the factors named above influence your choice? How would changes in some of the above determinants impact your profitability?