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By the end of this section, you will be able to:

  • Identify factors that affect demand
  • Graph demand curves and demand shifts
  • Identify factors that affect supply
  • Graph supply curves and supply shifts

The previous module explored how price    affects the quantity demanded and the quantity supplied. The result was the demand curve and the supply curve. Price, however, is not the only thing that influences demand. Nor is it the only thing that influences supply. For example, how is demand for vegetarian food affected if, say, health concerns cause more consumers to avoid eating meat? Or how is the supply of diamonds affected if diamond producers discover several new diamond mines? What are the major factors, in addition to the price, that influence demand or supply?

Visit this website to read a brief note on how marketing strategies can influence supply and demand of products.

What factors affect demand?

We defined demand as the amount of some product a consumer is willing and able to purchase at each price. That suggests at least two factors in addition to price that affect demand. Willingness to purchase suggests a desire, based on what economists call tastes and preferences. If you neither need nor want something, you will not buy it. Ability to purchase suggests that income is important. Professors are usually able to afford better housing and transportation than students, because they have more income. Prices of related goods can affect demand also. If you need a new car, the price of a Honda may affect your demand for a Ford. Finally, the size or composition of the population can affect demand. The more children a family has, the greater their demand for clothing. The more driving-age children a family has, the greater their demand for car insurance, and the less for diapers and baby formula.

These factors matter both for demand by an individual and demand by the market as a whole. Exactly how do these various factors affect demand, and how do we show the effects graphically? To answer those questions, we need the ceteris paribus assumption.

The Ceteris Paribus Assumption

A demand curve    or a supply curve    is a relationship between two, and only two, variables: quantity on the horizontal axis and price on the vertical axis. The assumption behind a demand curve or a supply curve is that no relevant economic factors, other than the product’s price, are changing. Economists call this assumption ceteris paribus    , a Latin phrase meaning “other things being equal.” Any given demand or supply curve is based on the ceteris paribus assumption that all else is held equal. A demand curve or a supply curve is a relationship between two, and only two, variables when all other variables are kept constant. If all else is not held equal, then the laws of supply and demand will not necessarily hold, as the following Clear It Up feature shows.

When does ceteris paribus Apply?

Ceteris paribus is typically applied when we look at how changes in price affect demand or supply, but ceteris paribus can be applied more generally. In the real world, demand and supply depend on more factors than just price. For example, a consumer’s demand depends on income and a producer’s supply depends on the cost of producing the product. How can we analyze the effect on demand or supply if multiple factors are changing at the same time—say price rises and income falls? The answer is that we examine the changes one at a time, assuming the other factors are held constant.

For example, we can say that an increase in the price reduces the amount consumers will buy (assuming income, and anything else that affects demand, is unchanged). Additionally, a decrease in income reduces the amount consumers can afford to buy (assuming price, and anything else that affects demand, is unchanged). This is what the ceteris paribus assumption really means. In this particular case, after we analyze each factor separately, we can combine the results. The amount consumers buy falls for two reasons: first because of the higher price and second because of the lower income.

Questions & Answers

(1).Income is the main determined of macro economics. (a). true (b). false
Manisha Reply
tell me correct ans with examples!!
what yes yes?
mam actually I want to say that income is not the main determinant of macro economics.
based on your knowledge about the production possibility frontier,demonstrate an assumption of supposed schedule of ppe for the production of rice and face masks by Bangladesh.use graphical representation as well
Ashraf Reply
can you answer this
whats tradeoff
tradeoff is a balance achieved between two desirable but conflicting things
can I read in Hindi?
Rashmi Reply
don't know..
why not
Omid Amini....how?
sure thing
mention two necessities of estimation of national income in india ?
Krishna Reply
what means the supply
Abdourahamane Reply
its means amount of product available right now.
is everything important here🙂
I mean anything*
u can read it
it's mean something needed or wanted
where are from shweta
where are you from shweta
it may mean the stock available
to make something needed or wanted available to someone
is someone who manufactures something
What is the cost-benefit analysis?
Hannah Reply
A cost benefit analysis is a process by which organizations can analyze decisions, systems or projects, or determine a value for intangibles. The model is built by identifying the benefits of an action as well as the associated costs and subtracting the costs from benefits.
Cost benefit analysis is a process used primarily by businesses that weighs the sum of the benefits, such as financial gain, of an action against the negatives, or costs, of that action.
process of cost benefit analysis and decision making crieteria
hello everyone
hello every one,
hello everyone
what is the opportunity cost?
The next best option forgone is call the Opportunity cost of selection one.
who is producer?
rishabh Reply
karan johar
shut up mr.mohd
it's serious question..
shut up mr.mohd
simple who produce good
who is aconsumer?
Ritik Reply
who uses the commodity
a consumer is one that buys good for consumption .
Kanza consumers uses the commodity..
why do we put tariff on import goods
Salam Reply
Maybe to give national enterprises better opportunities than foreign ones... or just to get more money to the national budget in any way possible. I suppose it allows also to control import and therefore its influence on national economy and other countries economy too.
i think to control import or for development of his own industry
what were the events during the great depression that made classical economy tenets ineffective
Alby Reply
please what is the answer for the following question; derive the expression for a two sector Keynesian model from sowotuom land economy and state all the two components in the expression.
Alby Reply
No idea
meaning nature and scope of macroeconomics
Diksha Reply
meaning of macroeconomics
meaning of macroeconomics
meaning of macroeconomics
Macroeconomics covers aggregate or in simple words overall economy of country or world while microeconomics was just concerned with individual economies
Hope this helped you, you can search it more on Google there is a YouTube page by the name of jacob Clifford
How aggregate demand and output gap are related explain in the light of keynesian cross diagram
Muhammad Reply
what are the jobs of an economist
Shadrach Reply
study and predict economic indicators. give a economic base for polictical decision

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Source:  OpenStax, Macroeconomics. OpenStax CNX. Jun 16, 2014 Download for free at http://legacy.cnx.org/content/col11626/1.10
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