What is Demand & Supply ?

Demand and Supply are fundamental concepts in economics that describe the behavior of buyers and sellers in a market. Together, they help determine the price and quantity of goods and services traded in a market.

Demand

Demand refers to the quantity of a good or service that consumers are willing and able to purchase at various prices during a certain period of time.

Key Factors Affecting Demand:

1. Price of the product: As the price of a product decreases, the quantity demanded typically increases (and vice versa). This is known as the law of demand.
2. Income of consumers: Higher income usually leads to higher demand for goods.
3. Tastes and preferences: If consumers prefer a product more, demand increases.
4. Prices of related goods:
   • Substitute goods: If the price of a substitute (alternative product) rises, the demand for the original good may increase (e.g., if the price of tea increases, demand for coffee may rise).
   • Complementary goods: If the price of a complementary product falls, demand for the original good may increase (e.g., if the price of smartphones decreases, demand for phone cases might increase).
5. Consumer expectations: Expectations about future prices or availability can affect current demand. For example, if consumers expect a product’s price to rise in the future, they may buy more now.
6. Population changes: More people in the market can lead to higher demand.

Supply

Supply refers to the quantity of a good or service that producers are willing and able to offer for sale at various prices over a certain period of time.

Key Factors Affecting Supply:

1. Price of the product: As the price increases, producers are typically willing to supply more of the product. This is known as the law of supply.
2. Cost of production: If the cost of producing a good (e.g., raw materials, labor, energy) decreases, producers can supply more at the same price.
3. Technology: Technological advancements can increase production efficiency, leading to a higher supply.
4. Prices of related goods: If a producer can make a higher profit by switching to a different product, they may reduce the supply of the current product.
5. Government policies: Taxes, subsidies, and regulations can either encourage or discourage production. For example, a subsidy may increase supply by reducing costs for producers.
6. Expectations of future prices: If producers expect higher prices in the future, they might reduce current supply and store goods for later.