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.
I/C
The Market Forces of Supply and Demand
Supply
- It is the quantity of any good that sellers: –
- Desire to sell
- Have the ability to sell
- It shows the behavior of sellers.
- It increases with the rise in price.
Demand
- It is the quantity of any good that buyers: –
- Desire to sell.
- Have the ability to sell.
- It shows the behavior of buyers.
- It decreases with the rise in price.
Comparison Between Supply And Demand
| Parameters | Supply | Demand |
|---|---|---|
| Definition | Supply 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 Price | Quantity supplied increases with a price increase. | Quantity demanded decreases with a price increase. |
| Curve | The supply curve is upward-sloping. | The demand curve is downward sloping. |
| Determinants | Determinants 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
I/C
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
I/c
Supply and Demand Curves
Supply Curve
- The direct relationship between price and supply is depicted.
- It is an upward-sloping curve.
Demand Curve
- It illustrates the negative relationship between price and quantity demanded.
- It is a downward-sloping curve.
Key Determinants
I/C
Determinants of Supply
- Price of the Good
- Price of Inputs
- Technological Developments
- Future Expectations
- Number of Sellers
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.
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.
As sellers in the market rise, the demand increases.
I/C
Determinants of Demand
- Price of the Good
- Income of Buyers
- Preferences
- Future Expectations
- 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.
Similar Posts:
- 20+ Differences Between Movement In A Demand Curve And A Shift In A Demand Curve (Explained)
- 20+ Difference between Supply and Quantity Supplied
- 20+ Differences between Futures and Options (Explained)
- 20+ Difference between Perfect Competition and Monopolistic Competition
- 20+ Differences between CFD and Spread Betting (Explained)
“Business, marketing, and blogging – these three words describe me the best. I am the founder of Burban Branding and Media, and a self-taught marketer with 10 years of experience. My passion lies in helping startups enhance their business through marketing, HR, leadership, and finance. I am on a mission to assist businesses in achieving their goals.”