In economics, the fundamental law of supply and demand is the foundation of the market economy. Demand refers to the amount of a good or service that consumers want. Supply refers to the amount of the product that the market is capable of producing. Many factors affect the demand for a specific product.
The price of a product is one of the most basic factors affecting the demand for that product. The amount of a certain product that a consumer buys depends on its price. An inverse relationship exists between the price of the product and the quantity that consumers are willing to purchase. This means that as the price of a product goes up, people will buy less of that product. As the price goes down, people will buy more. This relationship is called the law of demand.
The price and availability of related or substitute goods also impacts demand for a product. Some products, such as barbecue grills and charcoal, are complimentary. Consumers typically buy charcoal when they purchase a grill because they need both products to have a barbecue. If the price of either charcoal or barbecue grills increases, a consumer's demand for both products may decrease. Other products, such as Douwe Egberts and Maxwell House, are not related. In fact, one type of coffee can be substituted for the other. In this case, the relationship between the price of either good and the demand for that good is a positive relationship. For example, if the price of Douwe Egberts increases, the demand for Maxwell House will increase, because consumers can substitute the more expensive coffee with the less expensive one.
A consumer's income also affects the demand for a good. For many products, the relationship between income and demand is a positive one. This means that as the consumer's income rises, demand for the good also increases. If income falls, the demand decreases. However, some goods are inferior goods, which means that the demand for the good may decrease even though income has gone up. Inferior does not mean that the product is low-quality. It suggests an inverse relationship between income and demand.
The consumer's individual preferences and tastes also impact the demand for a specific product. People's tastes may change over time. Many things can cause a person's preference for a product to change. For example, a popular celebrity's endorsement of a product might encourage more people to buy that good. On the other hand, learning that you have high blood pressure might discourage you from buying salt or high sodium foods.
A person's expectations about the future influences the amount of a product he is willing to buy in the present. For example, if you expect the price of petrol to go up tomorrow, you may decide to fill your tank today.
Amount of buyers
The demand for a product depends on the number of buyers in a given market. For example, the demand for school supplies, such as notebook paper, will be higher during the school year because children need these supplies for their classes. The demand for these goods will decrease when the school year ends.