Supply_and_Demand

Supply and Demand Paper Supply and Demand Paper In this paper, you will read about supply and demand. The good that I have experienced purchasing and have chosen to explore is the washing machine. I will explain the factors that affect the supply and demand of this good. I will explain factors that could cause possible changes in supply and demand. I will determine at least two substitutes there may be for the washing machine. I will determine at least two compliments there may be for the washing machine. I will also explain how the necessity of the washing machine impacts price elasticity. Four types of washing machines are supplied. They include household, semi-commercial, commercial, and industrial. When shopping for a washing machine there are many suppliers and options available. The producers include Samsung, Frigidaire, Maytag, Whirlpool, GE, LG, and Electrolux, “just to name a few.” According to [ (Stahel, 1992) ], the Electrolux is currently number one supplier among commercial washing machines. The factors that could cause possible changes in supply and demand are numerous. Many variables can cause changes in supply and demand. I will start by exploring factors that can change the demand of washing machines. Income could be a factor. A rise in income would increase the demand. If an individual had increased income then he or she would have the money to spend on a new washer. Washing machines would be considered a normal good because if income decreased then the demand would decrease. I think that if one would consider a substitute for a washing machine, which would be a laundry mat, the Laundromat could be considered an inferior good. Therefore, if the price increased for washing machines the demand would decrease. However, the demand for Laundromats would increase. Another factor that could cause changes in the demand for washing machines would be the price of related goods. A compliment of washing machines would be dryers. If the price of dryers decreased this could cause a demand for both washing machines and dryers. Expectations would be a factor that could cause a change in demand. If I expect my income to increase, in the future I could invest in a new washing machine today. If I expect the price of washing machines to drop or a better washer to come along then I would possible wait. High quality energy efficient appliances are becoming more popular. I think that the new energy efficient, water saving washing machines could also increase the demand or shift the demand curve toward energy saving washers. I think that one important factor to consider is that high efficiency model washing machines use 30% less water and can save up to 50% on energy. The purchase of energy efficient household appliances is increasingly being promoted by government incentives. I think that the demand for these models would be a factor that would change the supply and demand of all washing machines. Conserving water and energy resources could greatly affect the supply and demand of washing machines. The factors that could possible cause a change in the supply of washing machines include input prices, technology, expectations, and number of sellers. To produce outputs washing machine producers use various inputs. These inputs include all the various mechanical parts used to produce washing machines. The inputs also include the labor workers, and the buildings. These inputs are also the warranties for the washing machines and the repair people who are available to diagnose and fix problems with the washing machines. When the input prices rise, production is less profitable. Therefore, the cost of making washing machines is related to the supply. Many of the washing machine producers also produce other appliances. The technology for turning inputs into washing machines also determines supply. Technology aids in reducing the price of production, which in turn increases the supply. Advances in technology change the production process and increase supply. The producer’s expectations also relate to the quantity of washing machines produced. The supply of washing machines in the market depends on the number of sellers. For example if Maytag and Whirlpool went out of business, then the market supply of washing machines would fall. The production capacity of washing machines depends on market conditions. The two substitutes that I have determined that there may be for washing machines are the self-service Laundromats and shared laundries. The product-life website suggests that the demand for shared laundries may grow faster than the demand for household washing machines. I also determined that dry cleaning could be considered a substitute for a washing machine. The two complimentary goods I have determined that there may be for washing machines are dryers and laundry soap. Necessities tend to have an inelastic demand whereas luxuries have an elastic demand [ (Mankiw, 2006) ]. Whether a good is necessity or a luxury depends not on the intrinsic properties of the good but on the preferences of the buyer [ (Mankiw, 2006) ]. The necessity of washing machines significantly impacts price elasticity. I think that washing machines would have an elastic demand because they are purchased infrequently. Washing machines have the characteristics of a long life product because they can last 15 to 20 years [ (Stahel, 1992) ]. Washing machines are considered consumer durable. Washing machines are used constantly in normal daily life therefore; they would display less price elasticity. Washing machines also can be postponed if the prices increase or income decreases. Supply and demand are the forces that make the market economies work. Supply and demand determine the quantity of each good produced and the price at which it is sold. What determines how many washing machines customers buy depends on price, income, the price of substitutes and complimentary goods, taste, expectations, and the number of buyers and sellers. These factors can cause changes in supply and demand. Whether the washing machine is considered inelastic or elastic, necessity or luxury, I think that this depends on the perception of the consumer. Reference Mankiw, N.G. (2006). Principles of Economics (4th ed.). Cengage South-Western Walter R. Stahel (1992) The Product-Life Institute Geneva. Retrieved form http://www_product-life.org/en/archive/casestudies/washingmachines