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Law of Demand and Supply
Everyone in the academic world or even non-academic people know these two terms – demand and supply. Demand depicts how much of a product or service is required to satisfy the consumers and supply means how much of the product or service the market can offer to the consumers. There should be a parity in these two aspects otherwise the market will have to face different types of problems including erratic prices of the products, decreased demand, and so on.
There is a direct relationship existing between the price of a product and its demand in the market or the supply of the product to the market. On the other hand, the manufacturers, producers, or service providers focus on resource management and marketing strategy according to the demand of their products or services and their optimum ability to supply the products or services.
The Law of demand states that if all other variable factors remain constant the higher the price of a good lower will be its demand. The demand curve is a downward sloping curve. On the other hand, the law of supply is a bit different which states that higher the price of a product or service higher will be the supply of that product or service. The supply curve is an upward sloping curve. When demand and supply are in equal quantity or volume, economists call it an equilibrium condition.
Now. Let’s look at some important questions related to demand and supply that the economists often answer:
- When the price falls, there is a tendency of the consumers to buy more, why this is so? Is it unreasonable to disrupt this “law of demand”?
- What are the appropriate procedures for finding how the product demanded or supplied is to variations in price, the income of the customers, and prices of other correlated goods?
- If a manufacturer lowers their prices, will its overall revenue also fall? Are there circumstances under which revenue might rise as price falls and what are those? Why?
- What is the best way to the total value consumers or producers receive the chance to buy and sell goods and services in an unrestricted market? How might government interference decrease that value, and what is a suitable measure of that loss?
Demand and Supply embrace all aspects of microeconomics, so you can’t tell what kinds of assignments will be given next, you have to be prepared for any kinds of challenges. Some related topics in demand and supply are the following ones:
- Price of related products
- Factors affecting supply
- Demand and Supply in labor market
- Demand and supply of normal and inferior goods
- Factors that change demand
- Change in the market equilibrium
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