Non Price Determinants Of Supply And Demand

Non-price determinants of supply and demand are anything that is not price related that can shift the supply and demand lines up or down. Demand is affected by situations that have an economic impact on the consumer, supply tends to increase or decrease with situations that effect the producing company. Since the consumer’s actions have an impact on company profitability the supply and demand line are intertwined. An analysis of the ridge tool company is the perfect way to illustrate how non price determinants of supply and demand are ultimately intertwined with price equilibrium.

The Ridgid tool company is a manufacturer of mid to high end tools. Because of their place in the market the two non price determinants of demand are income and price of substitute goods. Ridgid hand tools are priced in the mid to high range for tools of their type; which is the reason why income will greatly affect demand for Ridgid. Increases in income will increase consumer demand for “normal goods” otherwise known as luxury goods. Since consumers will have more money to spend their lifestyles will improve and they will want to purchase high end tools rather than their cheaper counterparts. They are more likely to reject what they feel is an inferior good solely because the price is less. Luckily for Ridgid their tools not only cost more, but they are of high quality and offer lifetime warranties; which cements their status as a normal good. If income were to go down the demand line would shift left and demand for higher end tools would go down. Just as there are non-price variables that effect supply, there are also ones that effect demand.

Non price variables that change the supply of products that are produced by Ridgid are Input prices and...

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...wrenches, Snap on is overpriced. Craftsman and Ridgid offer similar craftsmanship and warranty to Snap on at just over half the cost. While working in the plumbing industry it was observed that no one was using Snap on pipe wrenches and their price over equilibrium could be why; and consequently why Snap on is more famous for their automotive tools, which is supply and demand in action.

Supply and demand are not only affected by price. Price is only one factor of the many economic variables that exist. Production costs and income determine the amount of goods supplied and the amount demanded and contributes to price related determinates of supply and demand; consumers pay more when they have more, companies make more when it costs less. The inability of consumers to pay a certain price will force companies to lower their prices and consequently produce fewer goods.