Supply vs Demand
It doesn’t matter if you never have been a student of economics as the concept of supply and demand is still so important to you in real life. Demand and supply are two vital concepts that decide the market price of a commodity. If demand is expressed in quantity that is desired by people, and who are willing to buy a product at a certain price, supply refers to the quantity that the market is willing to offer in lieu of the price manufacturers are getting.
The price of a commodity in a market is always determined by demand and its supply in the market. This is because of the fact that people’s actions are based on self interest. Thus, when the price of a product is increased, people weigh cost and benefits, and buy less of that product if they perceive a lesser benefit out of the price that is being charged of the product. On the basis of this knowledge of action based upon cost and benefits, economists have developed a graphical model to represent the concept of supply and demand, which remains the most important concepts in the study of economics. Supply and demand model, as we know it today, first appeared in the writings of economist Alfred Marshall in 1890 in his book Principles of Economics.
The correlation between price and how much manufacturers are willing to supply in the market in exchange for the price they are receiving for a commodity is referred to as supply relationship. Price is nothing on its own, and is a mere reflection of the various pulls and pushes that demand and supply exert on it.
First of the laws that have been formulated using correlation between demand and supply is the law of demand. It says that all other factors remaining constant, the higher the price of a commodity, less is the demand generated for it. This is because to buy a costlier product, people may have to forego consumption of something else that might be of greater value. On the other hand, the law of supply states that higher the price of a commodity, higher is the quantity supplied. This is because manufacturers get higher revenue when the prices are higher than when the prices are low. Supply is also dependent upon time. Suppliers need to react to changes in demand or price quickly. This however, is not always possible, which is why it is important to understand whether a price change that is induced by demand is temporary or long lasting.
The change in price is temporary, as when in any given year there are more than normal rains and there is a sudden increase in the demand for umbrellas and raincoats. This temporary increase in demand is met by manufacturers by using their existing production facilities more intensively. If however, the climate of a place undergoes change and more rains start to take place regularly, the change in price is not temporary and more permanent in nature.
What is the difference between Supply and Demand?
• Demand refers to the quantity of a commodity that people are willing to buy at a given price
• Supply refers to the quantity that manufacturers are willing to produce at a given price
• The price of a commodity is a result of pulls and pushes exerted by demand and supply in an economy