Businesses work on a complex demand and supply based method of producing products and services.
- Supply is the quantity of a good or service that a producer is offering to supply into the market
- Demand is the quantity that the customers are willing to buy at a given price over a given period of time
- External factors, such as income or environmental or ethical change may mean that a product is no longer viable, smoking for example is no longer as profitable as it was as people no longer smoke as much as they used to. Influences may be out of the businesses control.
You may notice demand is present in the what influences the demand section, while it would not be a good idea to present it in an exam, I thought it worth including at the bottom as it technically does effect demand, as people may buy a product to own one before everyone else. Promotion is also a very broad term, this also encompasses things like fasion events, tastes and Economy also includes factors such as income.
Supply and Demand Competition
Supply of a product can generally be negated, as long as there is demand there will usually be a supply. Some mass markets, such as commodity items are often very unchanging and can have extremely thin margins to drive out competitors, this is known as a price war and can sometimes be more destructive to business profits than good as the product becomes devalued by the low price and people become unwilling to pay for the prices needed to pay for the product, however, this can sometimes improve the rate of the moving average as it forces businesses to increase their prices, usually at the same time to a higher-than-original value.That is one example of a price strategy (price war).
If there is no demand for a product, then there most likely will be no supply, as producers are not interested in creating a product that will not sell.
A Supply and Demand graph shows the relationship between the two, the graph can be altered by shifting either to the left or right, depending on whether you want to increase or decrease either, just remember that,
Left is less…
So by shifting either to the left, you are decreasing them. A handy tool for showing equilibrium.