How Does Price Affect Demand One of the most important factor that affects any business is choosing the right price for products and services. If the price of products are comparatively higher from the competition then there are chances of losing the customers. At the same time if the price of products are lower the company will not be able to make profits and eventually leads to failure in covering the cost for production. How price of products are related to demand and how the price of products are affecting the demand is also a serious concern for every business.
Demand Curve is a function which relates Price with respect to Demand in Economic Theory. According to this curve as the price increases, the demand automatically decreases. At the same time when the price is falling down, there will be a demand among consumers. However, if there is a difference in taste for customers or introduction of a new product the demand for the existing products may vary. When the demand for the customers is equal to the products being manufactured there comes an equilibrium in the case of Demand Curve. When such an equilibrium reaches the supply of products or the demand of customers will make either the price to rise higher or go lower.
Substitutes and Complements
Most of the time the demand for a product is depended on the substitute available in the market. In such cases, the lower cost product may sell more and the availability of compliments along with the product also will increase the sales. Switching of one product with another sometimes occurs due to the availability of substitutes and complements.
Non Price Shift in Demand
Sometimes the taste of consumers or a variation in the income level of the consumers can affect the demand. In such cases, the business should make the price lower to increase the demand and meet the minimum profit viable. In certain cases, the demand will increase if there is a sudden increase in salaries of the consumers. Several factors may also affect the demand by more people becoming interested in the product and this can help in increasing the price.