what affects supply and demand
... product. Some factors include the consumer’s income, tastes and the prices of the related products. There are many times when knock off products will complement the real things. Lets talk about some of the ways prices affect supply and demand. Firstly, we have marginal utility, which gives a customer the satisfaction of purchasing one or more products. Secondly, diminishing utility where there is not particular loyalty for the product. The more the consumer purchases the product the less eager they are to buy more. One example, “It’s a hot day in South Florida and you are dying of thirst. You went to a lemonade stand and purchased a glass of lemonade, you bought a second glass because it tasted great. (The second time is marginal utility). You bought a third glass of lemonade and your stomach got so bloated and you are feeling sick…” That is diminishing marginal utility. There are two types of changes, which directly affects demands; the demand for a product that occurs when price drops. Secondly, changes in the quantity demanded which changes the amount of a product demanded regardless of price. The difference between the two is subtle but important. If the sale of ice cream goes up in summer it is because the consumers demand has increase because it’s hot. The business will most likely raise prices without affecting sales because there is a change in the quantity demanded. If on the sale of ice cream went up in January due to a price decrease, the information receive is that demand was artificially manipulated. The actual demand is low and that extra effort had to be made to increase sales. This is change in demand. When there is a change in the amount purchased (tied into demand) due to the lower prices and surplus spending money it is called the income effect. Income effect basically happens when salaries are on the rise. Substitution effect is when prices for merchandize drops and the consumer buy more of the product at the expense of another. An example ...