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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

how is saving important
Gahima Reply
I think so
yahaya
for feature use
Amos
maybe not .saving is important pillar of economics .
Ray
Why did economic important
Aminata Reply
i asked about aloucation function
Ali Reply
uumm don't knol
Tawe
utility maens satisfactions
Yussif Reply
what about price elasticity of demand ... can yu explain deep
Tawe
hello
Au
hello gentle girls and men's economics brothers
Au
ok
Au
P
Osei
Price elasticity of demand is the degree of responsiveness to quantity demand of a commodity to a change in the price of the commodity in question
Osei
small wholsales like rural grocery stores sometimes exist even though they do not earn economic profits.How can you explain this
Kelly
was!
Prempeh
what are the 5 basic problem of an economy
Richard
the sum of individual demand in the economy is otherwise known as what?
Akon Reply
150p-2q=58 is it a supply or demand curve explain?
Rotich Reply
The above equation is a supply curve because quantity has a postive relationship with the price. That is as the prices increases quantity also keeps increasing and vice versa and this only applies to supply. 150p-58=2q 150p/2 -58/2=2q 75p -29=q ....q=75p-29 where q=quantity supplied p=price
Emmanuel
when q=1 ...p=0.4 q=10...p=0.52 so curve is increasing so it's supply curve
Harshita
Quantity keeps increasing as price also increases and vice versa
Emmanuel
so Emmanuel is that your final equation
Rotich
how then can you calculate equilibrium price since that's the quantity and then illustrating it in a diagram
Rotich
the other equation is 2q+10p=200
Rotich
to find equilibrium price we should get both the demand and supply functions so that we can equate the two
Emmanuel
make a the subject of the demand eqn and equate the demand and supply eqns
Emmanuel
alternative name for macroeconomics?
Akon
Policy economics
Caleb
hello sorry but i want to ask is this group chat for grade12
gospel
hey guy
Targan
ok
muqtaar
what is the meaning of unitary in economics
Katanku Reply
what is equilibrium ?
Gift Reply
equilibrium simple means equal to or balance to be equal
Au
what is deman
Andoh Reply
Demand is what consumer needs.
almas
not only that but also their ability to purchase what they need
Atanga
Demand is what consumers are willing to purchase and able to pay for.
Caleb
Demand is anything one can be able to purchase and possess at any given time.
elvis
demand is the ability and willingness to buy a specific quantity of goods and services, with the given price and at a particular period of time
Ibrahim
Demand for what is it for money or for goods, please specify.
MUNTARI
demand is the desire and ability of a consumer to acquire goods and services at a given price within a period of time
swallow
@muntari -pls this is economics class they are using economics term ok
Napoleon
demand means the ability to acquire a commodity with a strong purchasing power
okhiria
Yea what is utility
Tawe
producer equilibrium under alternative market structure
Muhammad Reply
what is abnormal demand
Arabi Reply
Howdoes income affects the demand of a commodity
Kessie Reply
Is the slope of demand curve Negative or Positive
Kessie
Is the slope of demand curve Negative or Positive
Kessie
Is the slope of demand curve Negative or Positive
Kessie
Is the slope of demand curve Negative or Positive
Kessie
Is the slope of demand curve Negative or Positive
Kessie
income affects the demand of a commodity in two ways, that is positive and negative. increase in income results in positive effect, that is more units Will be demanded than before when the Price of the good remains constant. Negative effect, decrease in income results in less units Will be demanded.
Atanga
Negative
Atanga
Hi
Bayong
Request
Massoud
Nice info
Massoud
negative
Francis
Monopoly is a market structure where there is one firm who dominates the industry.In US monopoly is defined when a firm controls 25% of the market
Emmanuel Reply
Monopoly is a market structure where there is one firm who dominates the industry.In US a monopoly is defined when a firm controls 25% of the market.
Emmanuel
That's right but,we have to define it in African context.👏👏👏
MUNTARI
great time to do the same way about anyone else in mind
KANNEH
In Ghana for instance,The electricity company (ECG) enjoys monopolistic powers
Emmanuel
whether in africa or US monopoly is defined the same, the major thing to consider is the major ingridient of the subject which says a market structure were there is one firm who dominates the market or induatry.
Napoleon
Yeah We Must just appreciate that in that market there is one firm dominating the market or industry .
Emmanuel
are you sure... as I know it has firm dominant in some sectors
Dawal
Monopoly is a market situation with only one seller. A natural monopoly exists when the monopolist's solo position is due either to the exclusive possession of some essential input, or to the existence of economies of scale so that no entrant can be profitable once an incumbent firm is established.
Nureni
You guys are great.
MUNTARI
Thanks
Massoud
what is monopoly
Belinda Reply
the forces of dd and ss
Kemg Reply

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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