Supply And Demand In The Retail Sector

Introduction

According to (Wiziq WebSite 2009), Supply and demand represent the most functional model that can be applied in any market. The latter is a combination of buyers and sellers interacting about a particular product or service. In this domain, two notions can be identified the quantity demanded and the quantity supplied. Quantity demanded is the demand volume with respect to a particular price and is represented geographically by a demand curve, whereas the quantity supplied is the amount existing, ‘laying on shelves’ which exposed to sale at given price.

The demand as well as the supply is subjected to laws, known as Law of Demand, it states that, if everything remains constant, as the price of a product or service increase, the volume of quantity demanded will decrease. Surrounding the demand, there are some factors that influences the demand variations. Income, Price of related products, preferences and future expectations are considered to be the factors which are more influencing on the demand curve behavior.

Demand curve is mainly two axes (quantity demanded and the price) and a curve that changes wherever there is any change among the factors. Those factors have different effect on the demand curve. When the price factor forces a movement along the curve (Because demand doesn’t change), other factors are shifting the curve to upward in case of increase of downward in case of a decrease.

In this supply side, the law of supply states that as the price increases the quantity offered by suppliers will be increasing as well. As for the demand side, supply has factors that are influencing the shape of the curve, if there is any change. Factors can range from Technology to expectations.

As for demand, factors have different effect on the supply curve. When the price factor forces a movement along the curve (Because demand doesn’t change),other factors are shifting the curve to right in case of increase and left in case of a decrease.

Reaching Equilibrium

Equilibrium is the intersection of the supply and demand curve. This point refers to a price. In this particular point, the two quantities (Supplied and demanded) are exactly the same. The quantity that buyers are disposed to buy matches the quantity the sellers are willing to sell. The companies want to reach this point so not have any excess supply (surplus) or excess demand (shortage). In both cases the market environment will tend to meet the equilibrium, by selling at fewer prices for example in case of surplus or selling at a high price in case of a shortage (Blacks Academy Website, 2009)

The Retail Industry

The retail industry is one of the elements that can lead to the success of any developed country. If food industry is included, it’s often the second sector where countries are making more money. In the UK, this sector is expected to grow by 15% in the next five years, Unfortunately , operating costs , that are considered to be important in this field, tend to make the profit less valuable, this is the reason why , the annual growth is not as it was before.

In addition to operating costs, factors as inflation, house prices and employment affect the ability of an individual to shop .It’s clear that living in such conditions, will see consumption slope go down. In fact, majority of people are spending less, since they are struggling with other substantial fees.

Computers Market

Computer market has known a tremendous change during the last 50 years. In terms of sales, numbers are really unbelievable, in 2002 for example, 500 hundred personal computers were in use, more that that one billion computers had been sold in 30 years of interval.

Day by day, personal computers are being purchased worldwide, the demand on this product is getting higher and higher, annual sales of computers are breaking all records, they exceed the billion item sold. Sales of laptops, for example, have recorded a growth of more than 97% .This fact that this segment is expanding, partially thanks to government policies and regulations. An example of these regulations is the free tax on computers importation, a factor that really boots this technological sector.

The New technological advancement have brought and add-value to this field. Nowadays, achievements like Bluetooth, WI-Fi, and infrared device have made the Personal Computer market among the strongest and most attractive sectors.

Computers Market Demand Factors

Income:

Let’s consider that the following graph represents the demand and supply curves for the computers market:

Supply and Demand

(Answers.com, 2009)

A rise in income will definitely lead to a greater purchasing power from the consumer, its willingness to for products will be greater .The type of product or service determines the volume of goods the consumers are willing to buy, and this is the effect factor that affects demand. For the majority of products, there is a direct relationship between what the individual earns and the product demand, when incomes decrease, we notice a fall of the product demand. This rule applies on goods called Normal goods.

In the other hand, inferior goods have inverse relationship with the demand when there is an increase in the demand. Inferior goods are those goods that won’t be needed or requested if there is an increase in the income, people living this change, will no longer buy the product that they used to buy before their salary increase. People should be aware that the term inferior (inferior goods) represents only the opposite relationship between the income and the demand, although, they may be of a low-quality product. Moreover, what can be inferior (product) for someone is a normal (product) for someone else. In general a consumer will go for a mixed basket containing normal and inferior foods.

As reported by EconPort 2009, Income is considered as the main and only tool for any type of customer to react in the market towards a product or service. In fact, any slight increase or decrease in the income pattern of any employee category is easily and quickly reflected in the demand of several products and services.

Bearing in mind that IT products, and more specifically computers, develop in a very quick pace, nowadays customers try as much as they can to purchase the latest up to date technologies to satisfy their need for high quality materials and speedy and highly responsive processors. From this point we conclude that any change in the individual’s income will be highly reflected in the computers market, thus shifting the demand curve up as follows:

Demand Shift

(Answers.com, 2009)

Preferences:

Let’s consider that the following graph represents the demand and supply curves for the computers market:

Supply and Demand

(Answers.com, 2009)

As stated in Econport 2009, preference is an intangible factor that has big impact on the demand, it might be affected by education, knowledge, trends. People preferences are difficult to pretend and to master in accordance with the demand, it has to do with fashion, and for example, if David Beckham wears a new tee- shirt, tomorrow morning everyone will be hoping to get this tee-shirt. Another example, Smart phones, even if they are powerful and making life easier, there is a preference or trends, everyone gets a Smartphone why not me?!

Successful companies nowadays know very well their target customers and therefore produce exactly what is desired by them. So as much the user preferences are respected and taken into consideration, the demand for the products gets higher and higher. So we get as a conclusion a shift up for the demand curve as follows:

Demand Shift

(Answers.com, 2009)

Substitute Products and Complements:

Let’s consider that the following graph represents the demand and supply curves for the computers market:

Supply and Demand

(Answers.com, 2009)

Customer preferences play a crucial role in the market demand for computers. As much as manufacturers in any kind of business strive to satisfy the customers’ preferences and tastes, the more likely their products get a higher demand in the market.

This factor is likely to be the most important factor affecting the demand of a good or service. The availability of substitutes for that product will have a consequence on the product elasticity. Example, if the price of a cup of coffee increases by 0,25 or 0,50 pound , consumers will be replacing their daily cup of coffee by a mug of tea. This is how the market reacts of a change in product’s price according to its substitutes.

Substitute products and complements for a product represent in general all the competitors’ products or substitutes that fill the same need for the customer. Computers seem to have a special type of substitutes: PDAs and Smart Phones. At the time of introduction of these technologies into the market, this has created a drop into the demand for computers. But computers manufacturers have quickly reacted to this drop in demand by promoting better their products through reducing costs and improving technology better to meet the market need for innovation and technological advance. The following graph shows the immediate effect of PDAs and smart phones to the market:

Demand Shift

(Answers.com, 2009)

Computers Market Supply Factors:

Number of Producers & Technology:

Let’s consider that the following graph represents the demand and supply curves for the computers market:

Supply and Demand

(Answers.com, 2009)

As stated in Econport 2009, the number of producers for a certain commodity in the market represents a very important factor into determining its supply. And because of the globalisation that the world is running into, supplying to different locations in the world became much easier and simply more profitable to thousands of companies worldwide. In fact, globalisation is transforming the various world markets into a unified global market where every company is able to trade freely.

The number, of producers entering the market of a particular product or service, impacts on the amount that producers are willing to produce and then to sell. The more tight the competition is the less the quantity supplied will be and with a soft competition, suppliers are able to produce more.

Any production process consists of inputs, processes then outputs. Production is always linked to technology, any improvement in the technology side will make this process more efficient. A company producing jams in cans used to perform the labelling process manually, when purchasing an automatic labeller, the company is now able to increase its productivity of cans. The technological factor should be taken with caution, because while automating the process, the company is depriving labour from an income. In sum, a technological improvement would lead to a more important output and will see the supply curve shifts to the right.

Another factor that determines the supply of computers in the market is the technological growth and expenditure. Computers manufacturing technologies are growing very fast in the last decade, and therefore pushing the market to supply larger quantities to satisfy the need of customers for new technologies.

The following graph shows the impact of the increase in the number of computers suppliers, as well as the fast technological growth:

Supply Shift

(Answers.com, 2009)

Price of Components:

Let’s consider that the following graph represents the demand and supply curves for the computers market:

Supply and Demand

(Answers.com, 2009)

As reported by Investipodia 2010, the price of components in any industry represents a basic point for determining any commodity price. The components represent even the raw materials used for manufacturing a product, or the products manufactured by other plants that enter into the composition of the commodity to produce. The price of any component has a direct impact on the total price of a product. And because the price of a product is composed of the sum of all the components prices used per unit, any variation in any component’s price is instantly reflected on the product’s price.

Everyone knows that the price of a product directly affects the product supply. But a product is a combination of process, raw materials, operation costs etc, these elements are considered to a factor affecting the supply side. If a price of any inputs or consumption fee, increases this will push the producer to sell for more money and thus a decrease its supply capabilities. In the other hand, if any price of input goes down, suppliers will be happy and will be pleased to produce more.

So if we evaluate the scenario of a price rise for one of the components of computers, we get the following: This will affect the ability of producers to produce the same number of units, leading therefore to a decrease in the supply of computers to the market. The following figure shows the effect of components price rise:

Supply Shift

(Answers.com, 2009)

Conclusion

Personal computers nowadays became widespread worldwide, and this has been the result of a sharply increasing demand on them for the last decade. It is certain that computers prices are falling very considerably due to the rapid technological advance the industry is following. We should also consider the different world industrial poles where the cost of manufacturing is considered to be relatively very law (China…). So any computers manufacturer finds it very beneficial to outsource all the manufacturing activities while focusing on the marketing issues. Lately, even the customer support services have been outsourced to countries where the labour force is considered to be very cheap (India…). So this has all helped the industry make the supply level relatievly higher than the demand level, and this is what is pushing the industry to making the prices fall more and more even with the increasing demand on computers.