Supply and demand analysis lets the manager see the bigger picture.
Market research on the impact of pricing of product on its demand is done by keeping all the other related characteristics constant. To evaluate how many jeans would be sold at alternative prices you keep the consumer income, advertising cost etc constant. This fundamental is known as the law of demand. The price and demand are inversely related. This curve is a downward slope.
Demand shifters – consumer income, price of related goods, personal preferences, and advertising, taste population and consumer expectaions.
When the demand curve shifts due to increase in the demand shifters it does not necessarily mean that it increases by a constant amount. It can vary slope can change.
Variables that influence the demand of the good other than the price are called demand shifters. When the demand shifters change so does the demand curve, the rightward shift represents the increase in the demand and the leftward represents decrease in the demand. The way in which demand curve shifts when there is increase in the consumer income depends upon the consumer consumption patterns. When it shifts to right it is called normal good otherwise it is called inferior good.
If for an increase in the good leads to increase in the demand of some other product then the other product is called substitutes eg coke and pepsi. All goods can be substitutes. Inversely If it decrease the demand of some other product then those products are called complements. Eg computer software and computers ; beer and pretzel. These goods have inverse effect on each other on the price consumption.
Increase in the advertising shifts the demand to right.
Informative advertising – which promotes the quality or the information of an existing product.
Persuasive advertising – when advertising of some quality increase the demand of a specific product.
Stockpiling – when consumers substitute present purchase for the future purchases. If the consumers expect that the price of some product will be higher next year then they will buy the product today. This phenomenon is called stockpiling.
Consumer surplus the demand curve can help manager assed the demand and consumption of a product keeping all the other variables in the mind.
• Industry size: entry increases the supply of product increases
• Input prices
• Output prices in related markets ( kind of like consumer substitution)
Ceiling price : If the government blvs that the equilibrium