Welcome to my blog! Last time we talked about three factors affect the  demand. Today, we will cover another three factors, and discuss something about supply.

Change in the price and availability of other goods and services.

For this point, the concepts of complementary goods and substitutes are need to be mentioned. Complementary good is a good whose appeal increases with the popularity of its complement, like car and gasoline; bread and milk. Substitutes good is a good that can be used in place of another, like taxi and bus; bread and cake; chicken and beaf. Thus, when the price of car increase, the demand for its complement, gasoline, will reduce; when the price of taxi increase, the demand for its substitute, bus, will increase.

Change in population. While population increase, the demand will increase, as the curve shift outward. vice versa.

Some other factors will also affect the demand, like in summer, the demand for ice-cream will increase, but in winter, the demand for ice-cream will decrease.

After talking about demand, we will discuss supply.

What is supply? It defined as the quantity that suppliers as willing and able to provide at a given price. The graph for demand curve normally have an upward trend, which means that as the price of this good or service increases, the quantity supply will increase. When people analysis supply, it’s also crucial to distinguish quantity supply and supply. The main difference between them is quantity supply will only change with the price change, but the supply will never change with change only in price, moreover, the change in quantity demand will show on the graph as a point change on the curve, but change in demand will show as the shift of the entire curve.

There are also some factors which will affect supply.

Firstly, change in the cost of factors of production. As we discussed before, factors of production contain land, labour, capital, and enterprise. if rent increase, or wages increase, that indicate the cost of factors of production increase. if this cost increase, then supply will decrease, the supply curve will shift inward.

Secondly, the advancement in technology. the technological advance means that the manufactories will produce in a more efficient way. For example, they will use machine to produce instead of labour on the assembly line. Thus the supply will increase, and the supply curve will shift outward.

Thirdly, the business optimism and expectations in future. if the supplier expect that price of product will increase in future, then they will supply less now. If sellers expect a lower price in future, then they will currently supply more. Moreover, if the supplier expect that the prospects for another industries will be better, like IT industry, some of manufactories will transform to IT corporation in order to get more profit in future, thus the supply for manufactories will decrease.

Finally, the change in price of other goods and services. An increase in the price of a substitute good causes a decrease in supply and a leftward shift of the supply curve. With the higher price, sellers sell more of the substitute good and less of this good. Moreover, An increase in the price of a complement good causes an increase in supply and a rightward shift of the supply curve. With the higher price, sellers sell more of the complement good and thus more of this good, too.