Determinants of Equilibrium of Demand and Supply

There are several factors influencing demand and supply equilibrium, among them being the commodity price. First, some consumers are likely to buy a commodity because it is cheap, while others buy it because it is high, suggesting they are looking for prestige. Secondly, consumer income influences demand and supply equilibrium because if consumers have money, they tend to spend more and less if the income is low. Finally, the third determinant is the prices of other related goods or services. These may be complementary goods that are bought to be used along with other goods or substitutes purchased in place of others. For instance, mobile phones and SIM cards are complementary goods since none can be used without the other.

On the other hand, people can consume tea or coffee as the two are substitute goods. Another determinant is the consumer’s tastes and preferences, whereby a consumer will buy a particular good or service because they like it more than the other. Lastly, consumer expectations may affect demand and supply equilibrium because consumers buy a good or service based on their belief regarding future rise or fall in prices.

From the two options, orange juice’s demand will affect supply more, thus the market equilibrium. If a consumer is used to having a particular choice of orange juice and there is a shortage for the same, they are likely to substitute it with another orange juice brand instead of foregoing it. Nonetheless, a scarcity of all orange juice brands will make the equilibrium shift to the left. This is because there are no alternatives for the consumers to substitute with. A negative supply causes the shift to the left side due to high demand. In the long run, consumers may go for another type of juice if the orange one is unavailable.

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