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When it comes to understanding markets, you’ll need to know about supply and demand – the first one is how much there is of a product, and the second is how much of that product people want to buy. That’s not heaps of info to fill out an essay with, so here’s some more stuff on the factors that affect supply and demand.
Factors that affect market demand
This is the big one. People make decisions based on what a product costs – but they also make these decisions based on what they think the product will cost in the future (if they think it’ll go down, people might wait). Finally, it depends on the cost of products – goods and services they might consider buying instead.
Income levels: This ties into price, too. How much people are earning plays a major role in how many things they can afford to buy.
Population size and age distribution: If everything else we’ve mentioned is equal, it’s easier to sell more things in areas with larger populations. It partially depends on the age distribution, of course, because a city of old-age pensioners is going to have different wants than a university town populated by 18-year-olds from around the world. But population-wise, open a pie shop in Wollongong, and you’ll probably sell more pastries than you would in Walgett. Well, except for…
Do people in Wollongong like pies? Maybe they’re more into sausage rolls, while the Walgett folk are obsessed with pies. Changing tastes and preferences can make your product a thing of the past – or the new hot thing.
Factors that affect market supply
Yep, it’s important on both sides of the supply/demand equation. The price you set for your product determines how much of it your suppliers can get to market. Set it too high and you’ll lock out suppliers with limited resources. Set it too low and you risk saturation which could potentially drive price down on resale. Marketplace competition is a factor here, too – if you’re selling the same thing as someone else but at a higher price, why are they buying yours?
Production costs: You can have the best business idea in the world, but it’s no good if you can’t afford to make the product you want to sell. Production costs limit how many of a product can be made at one time.
Number of suppliers: If you’re the only person making your product, it’s going to be harder for people to get their hands on, making it (potentially) more valuable. On the other hand, if every man and his dog are churning out these things, there’s going to be a lot more of them around.
Improvements in technology: If it’s cheaper and/or easier to churn out more of something, you’ll probably start seeing more of that thing.
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