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Posted on April 12th, 2014, by

The non-price shifters of demand and supply

Along with the price, there are other shifters of demand and supply. Today, innovations have become one of the major shifters that affect the balance of supply and demand. For instance, the introduction of an innovative product contributes to the fast rise of the demand on the new product. Moreover, innovative products are capable to create the demand. In the time of fast technological changes, innovations become one of the major drivers and shifters of demand and supply.

In addition, cultural factors may also affect the supply and demand. For instance, the fashion industry is highly dependent on cultural trends. The success of a product line often depends on the trendiness of the products rather than on its actual value. The impact of celebrities may be also very significant and affect the supply and demand.

Furthermore, promotion of goods and services may be a strong driver and shifter of supply and demand. The promotion provides consumers with the information on products and service they may be interested in but are not acquainted with until they receive the information from the promotional campaign. Thus, firms may stimulate the demand on their products or services.

5) The concept of Production Possibilities Curve

The production possibilities curve plays an important part for the assessment of maximum economic outputs of countries as well as companies. The production possibility curve is an important indicator that allows assessing the capacity of the company and its potential in the market. The production possibilities curve may be particularly important for investors, who are willing to invest their money into a company. They may use the production possibilities curve to assess the productive potential of the company and possible return on investments.

At the same time, the production possibilities curve provides rather hypothetical information which may be quite different from the actual position of the company. For instance, the production possibilities curve can show the possible rise of car manufacturing of the company at the level of 100 units per day. However, this is the maximum performance of the company that means that the company will manufacture 100 cars per day only on the condition if all its resources will be directed to meet this goal solely. In actuality, the company can hardly manufacture as many cars as 100 per day because it has to focus on manufacturing parts for cars, repairing cars, and perform other operations, which comprise an integral part of the regular performance of the company. As a result, the company can manufacture 75 cars per day, for instance, even though its production possibilities curve is 100.

However, the production possibilities curve is an important indicator which shows how efficient the company is. For instance, returning to the example of the car manufacturing company, it is possible to estimate that if the company manufactures 75 cars per day, while its production possibilities curve is 100 cars per day, than its performance is worse compared to the rival, whose production possibilities curve is also 100 cars per day, but its actual production is 85 cars per day. Therefore, the company has the potential to grow and the company has to take into consideration its production possibilities curve to realize its full potential.

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