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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

memory of development brain of the human psychologist
SERAJ Reply
?
lord
hlo
Ananya
Haw are you?
Shilan
hi
zge
hello
Emm
usef
hi
Gil
Haw are you?
Shilan
Aha ok
Shilan
hi
Daniella
waasup
Isaiah
hello
Sara
hello
androi
Haw are you
Shilan
im ok you
Daniella
Me to
Shilan
Thanks
Shilan
What's going?
Shilan
working
Daniella
how did psychology begin?
Valerie Reply
of psychologys commencement, the traces can be seen in the work of Aristotle, where he talk about soul and body, likewise work in durrant, de anima, all these were somewhere supporting dualism, in which soul could exist separately from body
amaan
but if you talk about the moder psychology, Gustav fechner, is credited with performing scientific experiments, basis of his experiments in psychology with his studies perception.
amaan
does psychology deal with love?
Mohammed Reply
Maybe, i think
edem
I definitely would say yes
Clara
how so
Isaiah
*triarchic
Meredith
there are so many different reasons why you can fall in love with someone, many of them develope subconsciously -> psychology
Clara
love messes with the brain, a lot, ergo I believe that Psychology does indeed deal with love
what is synapse
Katie Reply
In the central nervous system, a synapse is a small gap at the end of a neuron that allows a signal to pass from one neuron to the next. synapse are found where nerve cells connect with other nerve cells
Najeem
can you do auto book auto
Mariah Reply
WHT u mean?
usef
yes
MD
heyy, may i join the conversation please?
edem Reply
who is the father of psychology
Richy Reply
aristatil
Ramadevi
and please, how would you guys, describe the study of psychology at college ?
edem
psychologist student?
Aspen
i mean not yet but am about to start college so wanna know how is it(college in general and psychology course) please
edem
Psychology is the study of mind and behaviour. So if you will take psychology as a subject so you will get to know how your everything (physical, mental, social, spiritual aspects) effects your behaviour
sakina
With this brief knowledge you can help people to cope up with their problems and only you can guide them correctly
sakina
And if you go for further specialisations you can study hypnosis, face reading, body language etc
sakina
Thanks a lot🙏🏾 And ik some of the stuffs u said but i am also going to write thesis, right ?
edem
ok no prob, thanks a lot🙏🏾✨
edem
cerebellum
Khan
hae everyone, hope you are well this evning my question is what is the difference between drive and motivation
Michael
good question
Rainee
drive is more like an impulse or urge and i think they both go together (drive and motivation) even if there is a slight difference
edem
@ Michael Drive is delivered to be innate without the use of an external stimuli, motivation normally evolves an outside stimuli which may include praise, appreciate, or reward.
Reginald
*believed...sorry for typo
Reginald
@Reginald, can't the motivation come from the inner self?
edem
Good question, please give an example.
Reginald
can we say desire of success for example
edem
Wilhelm Wundt is the father of psychology
ipau
Wilhem Wundt thank you for the road that you opened.
Qwanta
You mean who is the father of having a great educated argumentative guess? nothing is more wrong than this question. The question is you should ask yourselfs is, how sure are you abour their scientific studying? one's percieved assimilated approach to judging another person and saying they are
Roger
the biggest problem with scientific research and data is that ya you could get the same result 1000 times then it could go the other way 1000 times, but we would never know that and we did, we would still say ya but the proof is there. The only thing science proves is that humanity has
Roger
no facts about human behavior in the scientific context, but more in the trial and error.. sorry to tell you, but so far no one has proven Father of anything, thats up to you and i, judgement is bias, science is good enough lazy
Roger
cognitive development is the growing and development of the brain.
Jessy Reply
Anyone knows about Techno-fascism?
Hussein Reply
Ecofascism is a theoretical political model in which an authoritarian government would require individuals to sacrifice their own interests to the "organic whole of nature". The term is also used as a rhetorical pejorative to undermine the environmental movement.
ipau
what's the big difference between prejudice and discrimination?
Danice Reply
A prejudiced person may not act on their attitude.  Therefore, someone can be prejudiced towards a certain group but not discriminate against them.  Also, prejudice includes all three components of an attitude (affective, behavioral and cognitive), whereas discrimination just involves behavior
Nancy Lee
hi
basher
hello
Rahul
what is all about cognitive development?
Kamohelo
cognitive development is the growing and development of the brain
Jessy
how do you control a variable when using spss whilst running a pearsons correlation analysis?
Jessie Reply
it dependa on your study. according to what you want to say and explain your result
Pouran
why does it say her and she
Jayla Reply
stages of cognitive development
brivia Reply
sensory preoperatinal concrete formal
Rajendra
what is psychology
Chethani Reply
the study of insecurities and the effect on the host .
Sera
Psychology is the scientific study of behavior & mental processes
Angela
psychology is science about learning human behaviour
Zhamshid
behaviorosm
Khan
In thinking about the case of Candace described earlier, do you think that Candace benefitted or suffered as a result of consistently being passed on to the next grade?
Nene Reply
Equilibrium price is a stable price and it must stay.discuss
Elvis Reply
Card 14 / 21: What are the similarities between a consumer’s budget constraint and society’s production possibilities frontier, not just graphically but analytically?
Ali Reply

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Source:  OpenStax, Principles of macroeconomics for ap® courses. OpenStax CNX. Aug 24, 2015 Download for free at http://legacy.cnx.org/content/col11864/1.2
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