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Price: Effect On Demand And Supply

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Published: Thu, 04 May 2017

In a society, every individual engaged in earning their livelihood in a different way. Some people by providing there services and products to others to earning their livelihood. From that, they live and satisfy their needs. Such an economy consider as an economy of a town, country and economy of the world. As stated by A.J.BROWN, “Economy is a system…by which people of an area earn their living”. (T.R.JAIN, O.P.KHANNA .2009-2010)In tradition, different country has different economy, economy like planned, free market, and a mixture of this two economy. In free market economy, there is no government intervention and all dicision taken by individual and firm. In economy demand and supply of a product is affected by many factors other than price, and according to it movement and shift in demand and supply curve occurs.

PRICE AND EFFECT ON DEMAND AND SUPPLY:

2. DEMAND:

DEFINITION:

According to Ferguson, “Demand refers to the quantities of a commodity that the consumers are able and willing to buy at each possible price during a given period of time, other things being equal.” Demand of a product is shaped by consumer, they may demand product on the basis of stutus, taste, income. (T.R.JAIN, O.P. KHANNA. 2009-2010). Now people like small, less weight, look of laptops. IDC report that pc shipment in 2006 was 10.1 and increase upto 16.7 in 2007.people more demand portable laptos than desktops. (www.v3.co.uk)

RELATIONSHIP BETWEEN DEMAND AND PRICE:

Demand of any product is affected by price of the product. According to Marshall, “The law of demand states that amount demanded increase with a fall in price and diminishes when price increase, other things being equal.”This relationship between demand and price is called law of demand. Here product is computer. There are two reasons by which demand of computer affected in the market.

1. INCOME EFFECT:

In this recession time, people have less income to spend. In this situation if price of the computer is rise, consumer will not able to purchase computer with their money. Because of that quantity demanded of computer is fall. This is called income effect when price of the computer (product) is rise.

2. SUBSTITUTION EFFECT:

In the competitive market there are many substitute for one product, like Compaq laptop have a competitor like dell, Samsung, Sony. If price of Compaq is rise consumer switch from Compaq to dell and demand for dell will rise. This is called the substitution effect when price rise. (JOHN SLOMAN. 2006)

DEMAND CURVE:

In the market people are demand for laptops at different price. This can be presented in graph. When data of price and quantity demand of a product present in the graph we get demand curve.

2.1 Demand for computer: [4]

Price of the laptops (monthly)

( In pounds)

Demand of laptops

(per month)

A

B

C

D

E

100

200

300

400

500

1000

800

600

400

200

(T.R.JAIN, V.K.OHRI. 2009-2010)

In the table 2.1 we can see quantity demanded of laptops at different price. In graph 2.1 on y axis it show price of the laptops in pound. And on x axis it show quantity demanded of laptops. At point E when price of laptop is 500 pound than demand of laptop is 200.

After few time price of laptop is drop from 500 pounds to 300 pounds, at point c demand of laptops is now go up and reach at 600 per month. Than it is continuously decrease in demand and increase in price of laptops. This line from A to E is called demand curve. (JOHN SLOMAN. 2007).

FACTORS AFFECTING DEMAND:

In a free market economy many factors other than price is affected demand. Their are many competitors in free market economy. Slide change in their plans can affect demand of a product. Some of the factors are describe as under,

Price of the main product (compaq computers) [movement in demand curve]

Price of the other related product.

Preferences of the consumer.

Income of the consumer [shift in demand curve]

Expectations of price changes in future.

Population. ( T.R.JAIN, V.K.OHRI. 2009-2010)

PRICE OF THE MAIN PRODUCT:

Demand of the computer is affected by many factors, so there are chances of increase and decrease in price of the computers. According to law of demand there is an opposite relationship between demand and price. Price is decrease by change in consumer preferance, introduction of new technology. For example company like compaq, price of the laptops is decrease in the Indian market due to technological advancement. Demand for laptops is increase due to this change in price. (K.G.ARORA. 2007)

In above graph on x axis it shows price of the computers and on y axis it shows quantity demand of the computers. D is demand curve for computers. It clearly shows that when price is decrease from p to p2 demand for computer is incease from q to q1. This creates movement along demand curve. In demand curve, point A is move towards point B. (T.R.JAIN, V.K.OHRI. 2009-2010)

2. PRICE OF THE RELATED PRODUCT:

Demand for laptops is also affected price of their substitute product and complementary product. Price of the product is changes because of other product offer better service,advantages in technology.For example demand of sony laptops is affected by price of the dell laptops. If Dell offer lawer price, demand of Sony laptops go down.it is called substitute effect. This create sift in demand curve. Demand curve shift from A to B.

Sony use Intel processor for some laptops, if price of Sony laptop is goes up demand for Intel processor is goes down, this is called complementary effect. [7] In the fig. demand decrease from A to B. when price of Sony decrese from p to p1. Demand for Intel decrease from q to q1.

3. PREFERENCES OF THE CONSUMER:

Taste and preferences of the consumer affect demand of that product. If preference is in favour of that product, demand for that product is high in the market. Preference of the people in favour of the product by previous experiences, fashion, status, and change in technology.like some people likes expencive product.

4. INCOME OF THE PEOPLE:

It is common in an economy that income and demand moves at a same direction. When income of a consumer increase demand for other product is also increase. Demand for inferior goods and product for necessaries of life is show differente relationship with income.In a case when consumer expect income rise in future,

1. Inferior goods:

There is an opposite relationship between inferior goods and income.when income of a consumer is rise there is a decrease in demand for an inferior goods.

2. Normal goods:

Normal goods are those good which are expencive. When income of the consumer is increase they like to purchase good which are expencive, show status. There is a direct relationship between income and demand for normal good. In below fegure when income increases from y to y1 demand also increases from q to q1. (T.R.JAIN, V.K.OHRI. 2009-2010)

5 EXPECTATIONS OF PRICE CHANGES IN FUTURE:

Demand of the product is also affected by future expectation of consumer. If consumer think that there is rise in price of a product in future, they trie to purchase as many as they purchase and demand in the market is also rise.

6. POPULATION:

There is a direct relationship between population and demand.population covers child, males, females, adults. In country when male’s ratio in population is high in that situation demand for mans product high in that country.

SUPPLY:

To supply product for a market, firm have factors of production like land, labour, capital.

Firm have to decide what Resources and technology are needed to supply good in the market, how much they get profit from it. Quantity supply means firm desides what quantity of goods

Supply in the market at a right time and at a right price.

Law of supply:

When other factors are same, when price of a product is high in the market to ern profit from that producer supply more. There is a positive relationship between supply and price.

Supply curve:

Relationship between price and supply describe as under.

PRICE OF LAPTOPS SUPPLY OF LAPTOPS

A 100 1000

B 200 2000

C 300 3000

D 400 4000

E 500 5000

In a figure, x axis represent price of a computer and on y axis it show supply of computer at a price of 100 pound supply was 10 million computer. When price increase from 100 pound to 400 pound supply also increase from 10 to 40 million.

FACTOR AFFECTING SUPPLY:

1. PRICE OF FACTORS OF PRODUCTION:

Now a day’s most of the company provides cheap laptops to their customers to achive sales. But that not means they sacrifice in quality.decline in the price of laptops because production cost of laptops is decrease day by day. (Titus Hoskins. (2009). When price of factor of production like rent, land, labour is increase producer have less profit to produce, so at that time they trie to identify different product with low cost. Due to this changes Supply of main product is decrease. Like Introduction of windows 7 increase supply of acer laptos. Increase in supply is increase from 15 % to 25 % in 2009 due windows 7 avaibility in the market. (windows7news.com).

In a graph we can easily see that when price of window 7 increase from 90 pounds to 100 pounds supply of acer laptops also increase from 15% to 20%. This creates movement along supply curve. On supply curve supply of acer laptops increase from point A to point B.

2. PRICE OF RELATED PRODUCT:

Price of the related product affect supply of main product.related product has two types.

1. SUBSTITUTE:

Dell and Sony laptops are substitute for each other.but they are maid by different producer so price change in one will not affect supply of the other. For example both laptops maid by one company than when price of the dell laptops increase producer more supply dell and recover as much as Profit Company can. Producer less supply of Sony laptops.

2. COMPLEMENT:

In supply curve when complement product are made from one supplier if price of one product increase supply of complementory product also increase. Because suppleir more interasted in supply more when price of a product rise.For dell and Compaq Company Intel processor is a complementory product. In recent year price of laptops is going down so Intel have to reduce there price as well as supply to stay in the market. (BBC. 2001).

Price of related product create shift in supply curve.

3. EXPECTATION OF COMPANY:

Market is change day by Day.if Company expect that there wil be an increase in price of a product in future, company is going to reduce their supply now and store them to gain advantage from that.

4. GOVERNMENT POLICY:

Government policies also affect supply of the product. Supply by other source autometically going to decrease if taxes on import and export is increase by government than.new tax rate implemented by UK government. Tax rate increase from 40% to 50%. This will affect 3, 00,000 peoples and other company. This tax rate applies on high earners whose income is 150000. Supply of laptops will going to fall due to that increase in tax. (www.rttnews.com)

The price of computers has continued to fall due to some resons discuss as under.

1. Price of the main product: (apple laptops):

Price of the main product affect demand and supply of laptops industries.if price of apple laptops inceases, demand for that product is fall in the market. But producer supply more to attract customer. Like in 2009 price of apple laptos 4% higher than their compititor dell. Due to that demand of apple fall from 16.4 to 13.7. But producer supply more to stay in the market.

In a graph we can see that demand fall from 16.4 to 13.7 and on demnad curve it reduces from B to A. this create movement on demand and supply curve. (http://mac.blorge.com)

New technology introduce by company:

When new technology introduce by a company demand and supply for that product is increase in the market. For example Apple is a famous company around the world. Apple intoduce their new product calls ipod touch. In first quarter ended on December 2008, demand for ipod touch is 22,727000. Company make racord of erning $10.17 billion. Supply of ipod is increase in that year. (www.apple.com)

Price of substitute product:

Demand and supply of product is also affected by increase and dicrease in the price of substitute product. Like dell and compaq reduce their price by 29% to increase sale in the market. This effect demand for apple laptops, demand is decrease. There is no change for supply of apple laptops.

We can easily show that demand of apple fall and rich from q to q1. (Mike Johnson. (2001).

Conclution:

In the market numbers of suppliers increase day by day, they are come with different quality and offer greater services.each supplier come with different ideas. Some one offer free delivery, great discount on purchase to attract consumers. To stay in the market each company reduce their price.


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