A market is a virtual place where buyers and sellers interact, and they vary in the intensity of the competition that sellers and buyers face. The market equilibrium for a product depends on its demand and supply.
The demand for a product is dependent on a number of factors like
- Price of the product: when the price of a product increases, the quantity demanded will fall.
- Consumer tastes
- The number and price of complementary goods
- Income and distribution of income
- Future price expectations
The supply of a product is also dependent on a number of factors. They are
- Price of the product: when price of the product increases, the quantity supplied also increases.
- The costs of production
- The profitability of alternative products
- The profitability of goods in joint supply
- Nature and other unpredictable events
- The aims of producers
- Future price expectations
- The number of suppliers
A change in the price of the product causes movement along the demand/supply curve, while a change in any other factor brings about a shift in the curve. The amount of change in demand or supply will depend on the elasticity of the product.
This assignment will discuss the factors affecting the demand and supply of some given products, for forecasting their demand and supply in the future.
Convenience foods have become an ineluctable thing of today's hectic lives. The demand for convenience foods is increasing day by day. Today, most people are migrating to urban areas, wherein because of the demanding and busy life schedule, people prefer to spend only a very little time on cooking. Longer working hours, more women entering the work force and more single people living alone are some factors which contribute to the increased demand for convenience foods.
Nowadays women are no longer confined to their households, and the number of working women is increasing day by day. This trend is more marked in developed countries, especially European countries. Of the total workforce of UK, about 29% was contributed by women at the beginning of 20th century. But it increased to 46% by 2000, and it is estimated that by 2010 one in five UK workers will be mothers (Microsoft, 2007). It is the main reason for the increased demand of frozen food in Europe. Europe is the largest market for frozen food contributing 38.6% of global value. The ready meals market contributed about $52.4 billion in 2007 throughout the world, which was 3.5% higher than that of the previous year. Whereas, the ready meal market in UK is growing at an average annual rate of 5.3% which is very high when compared to the global average of 3.5% (Research and Markets, 2008).
With the working population increasing every year, the demand for convenience foods will be soaring in the coming years. It is expected that the ready meals market will contribute about $61.7 billion in 2012, which is 17.8% higher when compared to the market in 2007 (Research and Markets, 2008).
An increase in demand: Factor-Population
PRODUCTS PURCHASED ON THE INTERNET
The internet has brought about revolutionary changes in business field. E-commerce was such a revolutionary change and it is conquering the consumers all over the world. Convenience is the main factor which attracts people to e-shopping. People no longer have to go to the busy shopping malls for buying a product. Moreover, e-shopping do not have any definite limits, including time and country, and people have the luxury of choosing the most suitable product from a huge number of sellers. Consumers prefer e-shopping because of these factors. This consumer preference for e-shopping can be understood from the phenomenal growth of companies like eBay and Amazon.
Consider the statistics of e-commerce in India. Indians changed to e-commerce only lately, but it is growing at an explosive rate. In 2006, contribution of e-commerce was $800 million, which increased to $1.2 billion in 2007 and $1.9 billion in 2008. Its contribution in the current fiscal year is $2.8 billion and it is expected to rise to $5.6 billion by 2011 (The Economic Times, 2009).
Even though economic recession has affected the growth rate of electronic shopping, its demand is increasing over the years, and with the introduction of newer technologies facilitating e-commerce in mobiles, this trend will continue in the coming years also.
FILM AND CAMERAS
The demand for traditional film cameras was decreasing in the past few years with the introduction of digital camera. The better image quality, reasonable pricing and aggressive marketing attracts customers to digital cameras. The fierce competition from digital camera reduced the sales of both traditional camera and film. The mobile revolution has also affected the demand for film and cameras. Most of the mobile phones in market are incorporated with good quality camera, and it is very convenient for the users as they don't need to carry an additional camera.
In USA, around 800 million film rolls were sold in the year 1999 and it dramatically declined to 200 million by the year 2006. The sales are declining by about 25 to 30 percentage every year (New York Times, 2007). Now, let us consider the sales revenue for the Kodak company. The revenue from Film Products Group (including film and camera) was $2841 million in 2005, which reduced to $2312 million in 2006, and $1968 million in 2007 (EDGAR online, 2008). The main reason for this decline is digital substitution (A recent research shows that the penetration of still digital camera in USA is 48%).
This downward trend will continue in the coming years and will be even more severe with the development of newer technologies in digital filming.
VIDEO RENTED FROM RETAIL OUTLETS
Video rental is decreasing nowadays because people prefer to spend money on buying movies rather than renting them. Consumer spending for DVD rental in Europe was 2.1 billion in 2006, which reduced by 13% to 1.9 billion in 2007. Europeans rented only 3.5 DVDs on average in 2007 when compared to 4.5 in the previous year. The decline in consumer spending on VHS retail was very dramatic from 206 million in 2006 to 2 million in2007 (99% decline) (IVF, 2009).
The main reason for this downward trend is that consumers have got many other alternatives like video-on demand and pay-per-view facilities, and most of the movies are available online for download at a cheaper rate. Moreover, pirated versions of movies are available in plenty on internet. Results of a research show that the use of online videos is increasing in Europe, with 28% of population using this facility in 2007, and it is 17% higher when compared to that of previous year (Brand Republic, 2008).
By looking at the decline over the past years, it is likely that the downward trend will continue in the coming years, and VHS rental will disappear from many countries within a few years if its high rate of decline continues.
PAY-PER-VIEW TELEVISION PROGRAMMING
Pay-per-view television programming provides the advantage of paying only for programmes, that the customers wish to watch. This is similar to the video-on-demand facility offered by some broadcasters, by using which the customers can view the desired videos by paying for it.
Consider the case of broadcasting industry in Japan. Here, the subscriber base of pay-per-view broadcasting services was declining over the past few years. But, this cannot be considered as a decrease in the demand for pay-per-view television programming, because the local cable TV operators providing similar service have increased their subscriptions during the same period. The total Pay-per-view broadcasting market constituted about 9.7 million households in Japan in 2001, which increased to 12.5 million in 2005 and 13.1 million in 2006. The future forecasts show that the demand will increase in the coming years to reach a subscriber base of 14.75 million households by 2011 (NRI, 2006).
The main reason for this increased demand is the consumer preference. More and more customers are attracted to this facility and it is reflected in its high demand. By considering the statistics of previous years, it can be estimated that the demand for pay-per-view television programming will continue to increase in the coming years.
The main global supplier of crude oil is OPEC. Being the oligopoly in the oil market, OPEC equilibrates the demand and supply of oil by changing the price and quantity levels. Oil production by OPEC is adjusted to fill the gap between the global demand and the non-OPEC oil supply. So, it is very difficult to estimate the future supply of oil as it is dependent on a number of complex factors.
The total world oil demand was 85.75 mb/d (million barrels/day) in 2008. Out of this, 54.75 mb/d was contributed by non-OPEC countries and the remaining 31 mb/d by OPEC. In the current year, the demand was 84.31 mb/d. Since the contribution of non-OPEC countries remained almost the same, oil supply by OPEC reduced to about 29 mb/d. But, as the global economies are recovering, the demand may increase in the near future. This may increase the crude oil supply by OPEC. It is estimated that, in 2010 the demand will increase to 85.1 mb/d (OPEC, 2009). So, the oil supply may increase in the coming years.
The demand for hotel rooms is very high in London because of the huge number of international visitors. London attracted about 26 million overnight visitors in 2007, and out of which 10 million were international visitors. In addition to this, there were around 130 million day visitors. And, with the 0lympics in 2012, tourists will be flooding to the city.
There were around 93,000 serviced rooms and 29,000 non-serviced rooms in London in 2002, and this number is increasing at an average rate of 2500 rooms per annum. The increased demand for hotel rooms will result in an increase in the room rents, and this in turn will increase the number of hotel rooms being given for renting. Moreover, in order to meet this increased demand, the government is planning to build around 40,000 hotel rooms by the year 2031 (Mayor of London, 2009). So, the supply of hotel rooms will increase in the coming years.
FAST FOOD OUTLETS IN EMERGING MARKETS
India is emerging as a good market for fast food companies. International chains like McDonald's, KFC and Pizza hut have already established themselves in the Indian market.
India, being the second highest populated country in the world is a huge market for any product and in the absence of a good Indian fast food company, success of the international chains is ensured. With the proportion of working parents and nuclear families increasing, more people prefer dining out, and a majority of this class, especially youngsters chooses fast food outlets.
In order to exploit this increased demand, many fast food companies are opening branches throughout the country. McDonald's, which started their first outlet in India in 1996, now have more than 220 outlets across the country. It has a daily customer base of 350,000, which comes around 7% of its total customers. Pizza hut has around 150 outlets in the country with a sale of more than Rs.30crores (India Environment Portal, 2007).
By considering the extraordinary growth of fast food outlets in India in the last few years, it is likely that this growth rate will continue in the future years also.
CREDIT CARDS ISSUED BY FINANCIAL INSTITUTIONS
Credit cards make the cash management and day-to-day transactions much easier and convenient for the customers. It also provides the facility for short-term unsecured borrowing. Because of these factors, the demand for credit cards was much high, and it continued till the 2007.
In 2007, when recession hit the countries throughout the world, people started using debit cards more than credit cards because of the fear of increasing interest rates and fear of losing jobs. In 2008, the spending on credit card in US was $203 billion, which reduced by 14% in the current year (Statesman.com, 2009).
The financial institutions are also reducing the credit limit on credit cards because of recession. Most banks are now targeting their current credit card holders who are less risky and more profitable, rather than issuing new credit cards. But, the major factor which will be having an effect on the future supply of credit cards in US is the recently passed act-Credit Card Accountability Responsibility and Disclosure Act, 2009. This act imposes restrictions on the supply of credit cards to individuals below the age of 21, and also regulates the interest rates, which in turn will make it unprofitable (Federal Reserve Bank of Cleveland, 2009). So, the supply of credit cards may decline in the coming years in US.
The demand for laptop computers are increasing because of its reasonable prices and new technologies. In order to overcome the fierce competition from other manufacturers, most companies are introducing latest technologies in their laptops and are making them affordable by reducing the prices. The increase in demand was phenomenal with the introduction of netbooks.
The net supply of laptop in UK was 3.1 million in the year 2004, and it increased to 5 million in 2005 and to 5.6 million in 2007 (National Statistics, 2007). With the increase in demand for netbooks, the companies are increasing the supply of it, and around 3.6 million netbooks were sold in the fourth quarter of 2008 only. By looking at this trend, it can be estimated that the supply of laptops will increase in the coming years, and this period may see the dominance of netbooks.
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