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Supply and Demand

Overview Description

When the need (demand) for goods increases and its availability (supply) decreases, the prices rise. On the other hand, if the availability of goods increases and the need or desire of goods or services decreases, the prices come down.

Supply in very simple terms is how much of something is made available to consumers. It is a basic economic concept that depicts the total amount of a specified good or service available to consumers. Supply has two relationships; the amount of goods available across a variety of prices as shown in a graph or the amount of goods or services available at a particular price.

Demand on the other hand is how much of something consumers want. Demand is an economic principle depicting the desires of a consumer, and the consumer’s willingness to pay a particular price for the good or service. If all variables are left constant, the prices of goods or services increase as the demand of the same increases and vice versa.

Depending on the price of goods or services, personal preference and utility, every specific good or service will have its own supply and demand pattern. This is to say that if consumers demanded a specific good, and are willing to pay more for the good, the good’s producers will add to the supply. Given the same level of demand, the price will fall as the supply increases. In an ideal world, markets will attain equilibrium when the supply equals the demand.

Demand Schedule

In modern day times, demand is described as the ability and willingness of a consumer to purchase a specific product in a given time frame. The demand schedule therefore, which is described graphically as a demand curve, signifies the amount of goods or services buyers are willing and are capable of buying at different prices, if all other factors apart from prices remain constant. The curve is usually drawn facing downwards, which mean that the demand rises as the prices fall.

Individual demand is determined by the level of income, the price of goods, personal tastes and preferences, the total population in the given economy, the price of substitute goods, government policies and the price of corresponding goods.

A demand shortfall occurs when the actual demand for a given good or service is lower than the estimated or projected demand for the same product. The shortfall is typically caused by an overestimation while planning of new products, and overestimation is as a result of strategic misrepresentation or/and optimism bias.

Supply

The law of supply is important to help understand the relationship that exists between supply and demand. According to the law, higher quantities of goods or services are supplied at higher prices. This is because the producers of the products are willing to supply a lot, at the higher prices as they will increase their revenues.

Shifts

A supply curve reflects the marginal cost curve and a demand curve reflects the marginal utility curve. A Shift may occur in either of the curves, because of a change in the product’s quantity supplied or demanded, even if the prices remain constant.

Conclusion

The demand relationship is not affected by time, but time is a factor in the supply relationship. Time is vital to supply because suppliers of goods, or those who offer services must, but can never always, react fast to a change in demand or a change in price. Suppliers or service providers of the goods and services will always take their time to determine whether a change in price caused by a change in demand will be long-term or short-term.

Tags: government, Income, law, market, price, revenue

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