Supply is a term that describes the quantity of goods or services that all producers are willing to offer in the market at a given time and price. On the other hand, demand refers to the amount of goods or services that customers are willing to buy at a specific price in a specific period.
Determinants of Demand
The level of demand for products is determined by the following factors:
Consumer tastes and preferences: For example, if consumers prefer a food, where consumers can identify who, where, and how the underlying agricultural commodities were produced, or will consumers be satisfied with a food product without knowing all of this?
Number of buyers in the market: The increase in the number of interested buyers or consumers will lead to an increase in the demand for the product.
Consumer income: Will the increase in the consumer’s income lead to higher product consumption or lower product consumption?
Price of related goods, such as substitutes or complements: For example, as the price of fuel increases, I am less interested in buying a vehicle that has low mileage. In this example, fuel complements a vehicle.
Consumers’ expectations for the future: For example: Even if my mobile is old, I will not replace it now; I hope that information technology will continue to advance to reduce the cost of future mobile phones. Therefore, I will use my current mobile and plan to replace it with a mobile in the future that has even more capability than the mobiles currently on the market.
Determinants of Supply
The supply level for a product or service is determined by the following factors.
Cost of resources: For example, The increase in the cost of raising cattle will cause me to sell cattle at lower weight earlier, thereby reducing my “cow pound output”.
Production technology: Advances in the technology used to produce the product will lead to an increase in the output of that product; as food processing becomes more automated
Taxes and subsidies: A supplier will reduce production if the cost of production rises as the result of a tax or other government-imposed cost on the production process
Price of other commodities the supplier could produce: What does this have to do with the opportunity cost?
Supplier’s expectations for the future: Expectations for the future price of the product reflect the expectations for future demand and supply of the product.
Number of suppliers in your market: How does information and transportation technology affect the number of suppliers in the market?
The Relation Between Supply and Demand
With regard to supply and demand, farmers need to know two important things:
1. Supply and demand will determine the market price of the goods or services
What does this mean for farmers? For example, when farmers set low prices, the demand for their products or services will increase. On the contrary, if farmers set high prices, the demand will decrease.
2. Market price will determine the supply-demand relationship of products or services
If the market price is high, it will increase the producer’s interest in a certain product. In other words, the supply will increase. In addition, if the market price is low, consumer’s interest increases, which means increased demand.
Let’s Find a Balance Between Supply and Demand
Supply and demand, and market prices, will rise and fall until they find a balance, which is called market equilibrium. For example, if price of apples are too high, most consumers will choose another fruit that is more affordable. In a response to falling sales, farmers will have to lower the prices until the demand for apples increases again. When the demand for apples is in equilibrium with the supply, the market is at its equilibrium.
In an uncontrolled market, the relationship between supply and demand determines the market price and the flow of sales of goods or services. If we look at the overall situation, supply and demand regulate the entire market competition which is why a farmer should have the complete knowledge of it.