Role Of Demand And Supply In Determining The Price Of Your Products
Demand is the total quantity required by the market. Supply refers to the total quantity of product made available at a point to satisfy demand. Both demand and supply have an immense influence on fixing the price of your products. Let us see about these in detail.
Demand determines the price of your product. The demand for a product falls when price increases. Demand for a product raises when its price falls. Thus, the price can be altered to boost demand.
When supply decreases, demand increases. Price can be kept at the higher end in such a situation. But when demand remains constant, if supply is increased prices will fall in the market.
The decrease in supply when demand remains the same results in increased price.
At times, the monetary policy of a country is adjusted to bring in desired changes. It can increase or reduce the money supply, thereby control interest rates and prices.
When the market has abundant money circulation int rates increase. People withdraw money from the economy and invest in good options with high returns. For example, people use apps like bitcoin loophole and investing in cryptocurrency. During such period, asset prices increase.
When the money shortage must be eased more funds are pumped into marked by the banking system which results in lowering the rate of interest. During such scenario asset prices fall.
Raising prices will reduce demand if consumers find good alternatives which are cheaper. Hence to keep increasing the price just because of increase in demand is not good. For example, when there is good demand for coffee, if the coffee price keeps increasing, consumers will look for cheap alternatives like tea. They will gradually decrease the consumption of coffee and switch over to tea. Hence there is a risk of losing customers altogether if prices are constantly kept at high levels. This rule is applicable to all the products except essentials like medicines.
Sometimes when a minimum price limit is set by govt, artificial demand may be created. Similarly, when government intervenes and fixes maximum price, there will be a decrease in demand. But such demands are created artificially and hence will not last long.
Demand, supply, and prices affect the economy as a whole. Also, changes in prices of one product affect the prices of related products also. For example, an increase in oil prices will reduce demand for cars.