Supply and Demand

[Name of the Institute]

Supply and Demand

Discussion

Demand is defined as the willingness of a buyer to buy a particular product or service at a certain price. Supply is defined as the ability of a firm or producer to provide a particular product/service to the consumer at a certain price. Following are certain influences on demand and supply. In this paper I will be considering m y experience in purchasing a car.

Influence on Demand

Prices:

If the price of a particular good increases, it will result in a decline in demand of that good. For example, if the price of cars increases, people will tend to buy fewer cars resulting in a decline in the demand for cars (Bernstein, Griffin, 2006).

Tastes:

Demand of a product is based on the preferences of consumers about a certain product or a change in taste and likings. An increase in taste for car s would occur when consumers' taste changes towards larger vehicles such as sport utility vehicles, minivans, trucks and high performance sport cars. Similarly, there would be an increase in demand when I might move to a house that is more distant from my work place. But if consumers' tastes change towards smaller or more fuel-efficient cars then the demand for luxury cars will decline.

Income:

A change in income directly affects the ability of a consumer to purchase a product/service. The relationship between income and purchase can be broken into two major categories.

Normal goods: normal goods are the product/service for which consumers tend to buy more as their income increases, ceteris paribus. Cars can be considered a normal good, cause as my income increases; I would definitely go for luxury cars (Friedman, 2004).

Inferior goods: The good or service for which consumers tend to buy less amount when their income increases and vice versa. For example, when the income decreases, I will go for economy and fuel-efficient cars.

Influence on Supply

Factor Costs:

Factor costs refer to the amount of money used in the production process of a good. If the cost of production increases, it will result in a decline in the supply. For example, if the cost of producing cars increases then it will lower the production of cars.



Substitutes

Substitutes are product/service which can be used in place of other product/service. For example, consider an automobile market where there are two brands of cars in the market, Brand A and Brand B, and there is lilted difference ...