It states that the demand and supply of a product are sensitive with respect to the price.
When the product price decreases, the demand of product increases and there supply decreases.
The intersection point of supply curve and demand curve is known as equilibrium point.
Factors influencing supply
The supply curve is affected by the following factors.
Cost of the inputs
Technology
Weather
Prices of related goods
When the products input cost increases, the products cost increases automatically. Then the producers reduce the production quantity it will affect the supply of the products.
For example, if labor cost and fertilizers prices increases, the cultivation decreases so supply of the paddy decreases.
The product manufactures, produce long life products by using advanced technologies, it will reduce the production cost per unit. This will enable the manufactures to have a more profit, hence, the produces will supply more products to the market.
During winter time, the woolen products demand increases, so the price of woolen products increase. This will leads to supply more woolen products in winter season.
If the television price is reduced, demand for television is increases also the associated products of DVD’s demand increases. In this case, DVD’s price is increases, which would result in more supply.
Factors influencing demand
The supply curve is affected by the following factors.
Income of people
Prices of related goods
Consumer taste
People income is the important factor which influence the demand. If the people income increases, their purchasing power will increases.
If the television price decreases, demand increases for television and also it’s associated product of DVD’s. in this way, the price of related goods influencing the demand.
The people preference for a specific products increase, it will leads to influence the demand. Example, diabetic patients prefer to have sugar-free products. In this case, sugar-free products demand increases.
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