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By Helen Hernandez

Customer summer

There is a decent number of various principle and secondary factors affecting supply and demand. On the examples of products and services present in the market it is possible to track the trends in industries, choose the most essential influential factors and their impact on supply and demand.

Economy requires that we study demand and supply for us to be able to understand consumer behaviors and to determine the price levels. Demand as a key definition in economics is derived from wants of people (or consumers) and can be defined as ‘the quantity of services or goods that can be bought at any given price over a certain period of time and supply is the willingness and capability of selling the goods or services’ [Alain Anderton, Economics. 1991, 3rd Edition]. The market exists wherever there are sellers and buyers of any particular good or service. In general understanding, the buyers demand goods from the market whilst the sellers supply goods to that market. Information about both supply and demand can be expressed in the form of a curve.

Depending on the company internal and external environment, change in price and other factors, we can observe the shifts in demand and supply curves.

Key Concepts and Theories

We should clearly understand the concepts and theories related to the demand and supply.

The basic ‘law of demand’ says that, when all other variables remain the same, the higher the price for the product or service, the less is the quantity demanded.

The ‘law of supply’’ says that the higher the price for the service or goods the greater the quantity of such services or goods is supplied.

There is a permanent movement of supply and demand around the point of market equilibrium.

Factors Influencing demand

demand-and-supply-curveIn our present daily life we observe an awful tendency for increase in demand for convenience foods despite the general perception of consumers that such products are unhealthy. That is a food which is designed to save consumers time in the kitchen and usually such a food is very affordable. These foods always require minimum preparation and can be saved over time. The largest companies producing those products are Nestle, Kraft Foods, ConAgra, PepsiCo, Unilever, ADM, Cargill, Coca-Cola, Diageo, Mars and they have annual sales exceeding $300 billion and have an overall stable tendency for the rise in sales volumes derived by the consumers’ demand.

More people are accustomed at the present days to buy products online. It is a convenient, fast, and reliable method to make instant purchases without the need to go the stores or supermarkets. It is also possible to purchase the versions of electronic products such as downloadable reports, books, computer software, music etc. There is a huge variety of online stores: Amazon.com, Buy.com, BestBuy.com, TigerDirect.com and many others. It possible not only to buy products but also to make online reservations of the hotel rooms, airline tickets, effecting payment for home utilities. There is also a very stable trend for increase in demand for such products available for purchases online.

Fax machines used to be highly demanded products in the past. The most powerful producers and suppliers are Xerox, Panasonic, Ricoh, Okidata, Gestetner, and Brother. Due to the technology progress over the recent decades the overall demand for them plummeted down, though they are still demanded for daily use in almost every small, medium, and large enterprise. The use of substitute and complement products such as email, specialized software for sending and receiving fax massages, electronic documents circulation software etc caused the overall decrease in demand for fax machines.

The photography film technology has also been an innovative solution in the 19th and 20th centuries. As the digital technologies has been developed in the recent decades, new and highly innovative solutions have been offered to the market with a great variety of products including digital cameras, web and surveillance cameras, imbedded digital camera in various gadgets. Cell phones became a sort of multipurpose devices replacing regular phones, cameras, music players, dictaphones, radio receivers, bluetooth enabled routers and modems. While we have a dramatic decrease in demand for the film cameras, we observe stable rise in demand for digital substitute products. It can be explained by the technology development progress, lowering self cost of materials and production and, thus, becoming availability of digital products to more levels of population.

Video rented form retail outlets has a complex structure though the demand for video on DVD disks and VHS tapes can be characterized in terms of niche market. With becoming available of plethora ways to purchase or watch video it is very difficult to predict any progress in developing demand in this segment of the market. Along with the existing rivalry in other segments of video market, we observe the strong positions of companies providing online video rental services. Though Netfix is considered to be the largest supplier of digital video rental, it had the annual revenue of slightly more than $6 million in 2006. Thus, it is impossible to tell about threatening danger from the side of competitors and about any significant changes in demand for the video rental retail outlets.

Pay- per- view television programming can be described as a service commonly provided by the telecommunication companies. Both households and hotel chains are the target groups of consumers of such a service and demand for the provided ‘intangible product’ depend on many factors: originality and recent release of a new film, actors staring in the movies, current interest in viewing the movie. It can also be considered as a niche without substantial market share.

Demand for the services of airlines has always been in demand and a very tough competition is present not only among the competing airlines but also with other modes of transportation: bus and railroad operators are always competing with airline services in every season and for every service to be provided, either transportation of passengers or cargo. Travel within the United States of America has undergone a severe test in the recent years, caused by the hijacking and other forms of terrorist assaults. The bankruptcies, planned mergers and acquisitions and a very tough competition with the industry forced many flight operators to look differently at the service they provide. Security issues became critical for survival of the companies but not for the demand of the services they provide. As people choose the most adequate services in terms of comfort and security, the companies face a stable demand, as people do not have another alternative for a fast movement or relocation, the companies providing airline travel services must accentuate their attention on the quality and security to retain the existing clients and to attract new ones. The overall demand for domestic flights will remain stable with a slight tendency for growth, though the seasonal factors should also be taken into consideration.

The demand for international flights and flights provided by the airlines within Europe has a similar tendency as it is in USA. Though the aircrafts operated in Europe are produced primarily by the largest European manufacturer Aerobus, the same factors affect the consumers’ demand for the flights as for the flights on the aircrafts produced by Boeing.

Factors Influencing Supply

A range of various factors impact the supply of the products and services provide by companies. As supply and demand are in a permanent interaction, the same principles, concepts and theories should be applied.

The market of crude oil is well known and tightly shaped market. The general technological factors have always been influencing the supply of oil to the markets, either international or regional. The existing pipelines are in the center of any discussions related to the products and building of the new pipelines is discussed by many sided in many countries, both economically developed and developing. Operations of the oil tankers are disputed in terms of regulatory compliance and ecological issues. The recent trends in the world market disclosed the hidden factors influencing the supply of crude oil. Along with many technological and market factors there is also a very crucial political factor, which under general conditions can hardly be controlled. There is a continuous demand for products derived from the crude oil and thus any irregularities in supply meet an instant response from the consumers. Thus, the consumed or demanded volumes require an adequate supply, what in turn boosts the prices for crude oil to the world market level. The periodic conflicts in the regions, critical for supply of oil, cause periodic fluctuations in oil price as a result of permanent demand and supply volatility. Other factors that influence the supply of oil include the natural components. The limited resources give an impetus for alternative resources development, thus shifting the demand to other energy sources. The supply and demand of crude oil finally returns the market value, which during the recent months become widely discussed and apparent.

The horticulture and live stock breeding is a long lasting part of human activities with a history coming long back to history. Every culture and consequently each market has a tradition of setting up the price and supplying the beef to the market. There are farmers, butchers, retailers or restaurants are the ones who are dealing with beef at different stages before the product will be delivered to the final consumer. The regular supply of this product is tied to the overall food market conditions and changes, if any, are in a strict compliance with the market demand.

The Hi-Tech industry offers innovative solutions to the market as it grows in a fast pace. The most recent inventions are charged at substantially higher prices than those oriented for the mass marketing, and the technologies being in high demand a few years ago usually do not have any demand in present days. Computer memory chips are usually attributed to the fad market.

Hotel services have a sustainable demand since many people travel and need some security provided by the hotels.

Bibliography

  1. Schenk, Robert. Efficiency and Markets.
  2. Stonebraker, Robert J.. Marginal Cost and Supply. Winthrop University.
  3. Basu, Kaushik. “The Economics of Child Labor”, Scientific American, October, 2003. Marginal Utility and Demand.
  4. http://www.investopedia.com/articles/05/011805.asp
  5. Kibbe, Matthew B.. The Minimum Wage: Washington’s Perennial Myth. Cato Institute.
  6. Mead, Art. Interest rates are prices. University of Rhode Island.
  7. Supply and Demand book by Hubert D. Henderson at Project Gutenberg.
  8. Price Theory and Applications by Steven E. Landsburg
  9. An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith, 1776
  10. Alain Anderton, Economics. 1991, 3rd Edition
  11. http://en.wikipedia.org/wiki/Supply_and_demand
  12. Office for National Statistics (ONS), monthly edition. Retail Sales January 2007

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