Demand curve – understanding, functions and factors that influence it
When a business makes a decision on how to determine the price of the product or service, he can analyze the demand curve or the market demand curve served.
Analyzing this information can help businesses determine their product and service prices in a way that balances their profit income with what is willing to spend consumers.
This relationship can be represented by a graph that shows how demand curve fluctuates with a price point and the number of different consumers.
In this article, we see what demand curve, how to analyze, and what factors can affect the up and down demand curve.
What is Demand Curve?
Demand Curve or demand curve on the market economy refers to the correlation between the price of a product and consumer demand for the product. The demand curve can be represented visually on the chart, where the price point of a product is represented on the vertical axis (Y), while the number or number of consumers is represented by the horizontal axis (x).
When viewing the demand curve graph, the team in an organization can show exactly where consumers have less demand because the price of a product increases.
Usually, when the price of goods rises, the number of consumers asking the product down, and this can be seen on the graph as a curve. When the curve is located more flat on the chart, it means the difference between price and low demand, indicates a successful price point to get product requests.
Demand Curve can also be considered a tool to measure customer willingness to pay for a product. Responsive consumers can provide valuable insights for companies about how the products or services are accepted by the market.
For example, a business might find that if raising prices for certain products, it is likely that consumer responsiveness to buy the product down.
The importance of knowing the demand curve
The demand curve can be an important tool for use when business makes price setting decisions. This is because the demand curve can show the price point where consumer responsiveness goes down, and the price point that raises the highest demand. Following these two factors, the company can set the price of its products so that it can produce profits while maintaining customer demand remains high.
In addition, demand curves can show which price point business is too low to generate which income and price points are too high so consumer demand decreases.
Knowing this information can help business make a balanced price decision between getting a decent advantage and maintaining customer demand for their products remains high.
What is the elasticity of demand?
Demand elasticity is a calculation of prices that measure the percentage of changes in quantity due to price changes. Demand elasticity is obtained by dividing the percentage of changes in quantity with the percentage of changes in product prices. A more elastic product is a product that is more responsive to price changes, while products that are not elastic are less responsive to price changes.
Let’s assume that a company that sells vitamins and supplements raises the price of the most popular supplements. If the company initially sells products for 10,000 and then raises the price to 15,000, the percentage of the increase is 20%. With the enactment of price changes, the company also increases the number of products produced from 1,000 to 1,250 units, or an increase of 25%. The price increase is 20% then divided by an increase in the quantity of 25%, or 0.8.
This tells the company that the option to increase prices on supplements may not produce an increase in customer response to price changes. If the calculation produces 1.0 or greater, it means that the company’s supplement products have a high level of elasticity, where consumers are more likely to respond to price changes.
Because the company calculates less than one results, the products they change indicate lower elasticity. This means that the consumer market will tend not to respond to product price changes.
The importance of demand elasticity can be seen when calculations are used to measure the possibility of successful sales, even if the price is raised. Elastic items have a possibility of higher demand, even with price increases, while demand for non-elastic goods can decrease due to product price increases.
Factors Affecting Demand Curve
Some key factors affect demand curve fluctuations. For example, market events such as the launch of new products, competitors’ prices, and consumer tastes (not only requests) can all affect how the demand curve changes during certain recording periods. Factors that can affect the request curve include:
Product or Service Determination
Prices and decreases usually have the biggest effect on demand curves because product prices affect the way consumers spend their money. In general, the higher the price, the smaller the possibility of consumers to buy. This can lead to changes (decreases) demand curves.
Consumer revenues also play a role in demand for a product or service. Usually, those with higher earlings may be more willing to pay higher prices for goods and services, while low-income consumers may not or cannot afford higher prices.
Competitors can also have an impact on the request of goods or services. If business competitors can sell the same product or service at lower prices and still benefit large, as a result demand can increase. This is why it is important to examine your competitors when making pricing decisions.
Consumer preferences can also change from time to time. For example, maybe certain products are very popular, but because changes in consumer preferences (such as new trends or related items that have been fixed), the same product no longer attracts the market.
Consumer expectations can also affect demand curve fluctuations. For example, if consumers expect the price of certain products or services to increase, it can change the way customers buy something. These expectations can cause an increase in demand or decrease in sudden demand.
That is the complete discussion of demand curve or a request curve that is useful for your business later in accounting for decision to increase production.
The big factor you have to note is in checking demand curves for different customer segments will vary. Thus, marketing, pricing, and bundling you must vary.
Remember, in the end, pricing is a process that you must integrate into your company trajectory to increase profits in your business.
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