Demand and supply are the two market forces. Each of these forces has some factors.
Demand is represented by the
consumers and supply is represented by the producers. People buy more
goods and services when their income
increases otherwise the demand for such goods and services declines. The drop in price has a substitution
effect and income effect. The substitution effect is the
change in food consumption associated with a change in price of food with the level of satisfaction held constant. It captures the change in food consumption that occurs as a result of the price that makes the food relatively cheaper than the other goods. When the price of goods rises, consumers will tend to substitute other goods for the more expensive goods in order to satisfy their desires more inexpensively. When a price rises and money incomes are fixed, consumers’ real income falls because they cannot afford to buy the same quantity of goods as before. As the population grows demand of the basic needs increases. People may have less money to purchase their needs in this case, demands decrease. Demand for goods and services increases when people like or prefer them. When people expect that the prices of goods will increase tomorrow or next week, they buy more of these goods. In effect demand of these goods will increase. When a price of a certain product increases, people tend to buy a substitute product. Commodities that are much affected to this change are those that are competitive in nature. Competitive in the sense it is supplied by a number of sellers and there is nothing to prevent the sellers from entering the market. The change in quantity demanded is brought about by change in price. Whenever there is change in price (increase or decrease), there is a corresponding change in quantity demanded. Others also believe that food prices are generally determined by some factors like the prices that small entrepreneurs are paying to the farmers. It was also thought that the cost in processing the goods and marketing the same also affect the prices of food. On the other hand, the utilization patterns also of the consumers will affect how the prices of food are formed. The change in the ways of life of the consumers which most of them are fond of consuming foods from the convenient stores and fast food chains changes the food prices. There are also other factors that may change the food prices and these are the rate of inflation in the country and the wages of the consumers. These factors will change the demand patterns and thus will change also the quantity of supply. When the supply of goods in the market decreases then food prices also are affected. In the real sense therefore, producers’ pricing strategies and food-price determination is very much affected by the behavior of the consumers.
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