20+ Differences Between Supply And Demand

Supply and demand are like the alphabets of economics. They are the basics over which other concepts are built. Thus, having clarity in the concepts of supply and demand is the stepping stone toward understanding the market economy. 

Whether you want to be acquainted with the market or dive deeper into the subject, you must have a clear and crisp knowledge of supply and demand. To do so, identifying and learning the differences between these two market forces becomes imminent.

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The Market Forces of Supply and Demand

Supply

  1. It is the quantity of any good that sellers: –
  • Desire to sell
  • Have the ability to sell
  1. It shows the behavior of sellers.
  2. It increases with the rise in price.

Demand

  1. It is the quantity of any good that buyers: –
  • Desire to sell.
  • Have the ability to sell.
  1. It shows the behavior of buyers.
  2. It decreases with the rise in price.

Comparison Between Supply And Demand

Parameters Supply Demand
DefinitionSupply is the number of goods that sellers are not only ready to sell but also have the ability to sell.Demand is the number of goods and services that buyers are not only ready to buy but also have the ability to buy.
Effect of PriceQuantity supplied increases with a price increase. Quantity demanded decreases with a price increase.
CurveThe supply curve is upward-sloping.The demand curve is downward sloping.
DeterminantsDeterminants of quantity supplied are the price of the good, input prices, the number of sellers, technology, and expectations. Determinants of quantity demanded are the price of the good, price of related goods, income, expectations, preferences, and number of buyers. 

Understanding Supply And Demand

What is meant by supply?

The concept of supply highlights the quantity of a particular good or service that sellers are able and ready to sell. Although the quantity supplied depends on several factors, the most crucial factor influencing it is the price of that good or service.

There are two participants in the market: buyers and sellers. The market supply is the key to understanding the behavior of sellers in the market. 

What is meant by demand?

The concept of demand describes the amount of any good or service that buyers are ready and able to buy. The price of a good is a crucial determining factor when it comes to its demand. 

By helping to understand buyers’ behavior, market demand brings the focus to the other side of the market.


Significant Differences Between Supply And Demand

Effect Of The Price of A Good Or Service

  • Supply- According to the law of supply, if all other factors remain equal, there is a direct relation between the price of a good and its quantity supplied. It implies that as the price of particular good goes up, its supply becomes higher. It’s because when the price of a commodity is high, it is profitable for the sellers to sell that commodity. And as a result, the supply soars.
  • Demand- According to the law of demand, if all factors are kept constant, then there is an inverse relationship between the price of a good or service and its quantity demanded. In other words, with the price rise, a fall in demand is witnessed. 

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Laws of Supply and Demand

  • Law of Supply- It explains that with an increase in the price of a good, its supply also increases.
  • Law of Demand- It says that with a rise in the price of a good, its demand falls.

Curves

  • Supply- The positive relationship between the price of a good and its quantity supplied is shown in the supply curve. The supply curve slopes upward. It is because as the price of a good goes up, its supply also increases.  
  • Demand- The demand curve depicts how the price of a good and its quantity demanded are related to one another. Since there is a negative relationship between these two, the demand curve slopes downward.

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Supply and Demand Curves

Supply Curve

  1. The direct relationship between price and supply is depicted. 
  2. It is an upward-sloping curve.

Demand Curve

  1. It illustrates the negative relationship between price and quantity demanded.
  2. It is a downward-sloping curve.

Key Determinants

  • Supply- The determinants of supply include prices of inputs, technology, future expectations, and the number of sellers in a market. Read below to understand how the quantity of a good supplied depends upon these factors: –
  • Prices of Inputs- As the input prices become high, the cost of producing a good becomes higher. Consequently, selling that good becomes less profitable, and its supply drops.
  • Technology- With technological advancement, the production of a good becomes easier as well as cheaper. This is why a rise in its supply takes place.
  • Future expectations– If a firm is expecting that in the future, the demand for the good that it is selling will go up, it will save it for that time and supply less in the market today.
  • The number of sellers- More the number of sellers of a particular good, the supply of that goodwill escalates.

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Determinants of Supply

  1. Price of the Good
  2. Price of Inputs
  3. Technological Developments 
  4. Future Expectations
  5. Number of Sellers
  • Demand- Among the significant determinants of demand are: –
  • Income of buyers- There is no clear-cut answer on how demand depends upon buyers’ income. There are two kinds of goods. They are called normal goods and inferior goods. 

The goods whose demand falls with the drop in income of consumers are called normal goods. 

On the other hand, when there is a surge in the demand for a good with the income fall of consumers, it is an inferior good. A good example of inferior goods is public transportation. As people’s income drops, they prefer public transportation more because it is cheaper.

  • Related Goods: When one good can be used in place of the other, they are called substitutes. A classic example is the combination of butter and margarine. In this case, with the rise in the price of one good, people may substitute it with the other good. It will enhance the substitute’s demand.

When two goods are used together, they are called complements. For instance, gasoline and cars. When the price of one good goes up, there is a decline in the demand for the other good as well.

  • Preferences- People’s preferences have a huge role in determining the demand for goods. However, it is to be noted that preferences keep changing with time.
  • Future expectations- If buyers expect the price of a particular good to fall in the future, there are high chances that they will avoid buying the product today.

As sellers in the market rise, the demand increases.

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Determinants of Demand

  1. Price of the Good
  2. Income of Buyers
  3. Preferences 
  4. Future Expectations
  5. Number of Sellers

(FAQs) Frequently Asked Questions

1. Why supply and demand are important?

Supply and demand are market forces. They are important because they help determine the prices of goods and services in a market economy.

2. What is the equilibrium price?

The equilibrium price is the point where the goods supplied by sellers are equal in quantity to the goods bought by the buyers. 

3. What happens when supply decreases?

When the supply of a good decrease, its price rises. It causes the demand to go down.

4. How does demand affect the economy?

When the demand for a product exceeds its supply, the price of the product rises.

5. What do you understand by market supply?

The sum of the quantities of goods supplied by all the sellers present in a market is known as market supply. 


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