Supply and Demand

Supply and Demand in Microeconomics

Apart from these two terms being an important part od studying

Microeconomics, for understanding them better, we have to have previous
knowledge about the terms mentioned earlier in class. We mentioned goods
and services and the key term to these two is “trading“. Also, the place
where the trade is done is called the market. All of these terms lead us to
our today's subject. The essence of supply and demand is not that difficult to
understand. Simplified, supply and demand are in fact buyers and sellers.
Buyers are the ones who demand and buy goods, and sellers are the ones
that put their supplies on the market. The relation between demand and
supply is one of the base concepts in economics and they are the core of
market economy.

Demand in economics is how many goods and services are bought at

various prices during a certain period of time. Demand is the consumer's
need or wish to buy the product or experience the service. It is limited by the
willingness and ability of the consumer to pay for the good or serivce at the
price offered. Demand is the elementary force that drives everything in the
economy. Forunately for the economics, buyers are never satisfied. Human
nature is that we always want more and because of that, the economic
growth keeps expanding. Demand is the key, because without it, no buisness
would ever bother producing anything.

The law of Demand helps understanding the purpose of demand itself. This
law explains us that (if all other factors remain unchaged) the higher the
price of the good, the less people will demand that good. In other words, the
higher the price, the lower the quantity demanded. This fact we all know, if
the price goes up, people buy less. Or the other way around, if the prices fall,
people buy more. It is important to understand that this law is true only if

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other determinants stay the same. In economics, this is called ceteris

paribus. The conclusion is that the quantity demanded for a good or service
is inversely related to the price.

Determinants of Demand

In total, there are five crucial determinants of demand. The first one, of
course, is the price of the good or the service itself. The next one is the price
of either related products which are either substitues or complementary.
Circumstances lead the next three and they are the incomes, tastes and
expectations.

Demand Schedule's purpose is to show exatcly how much units of a good or

service will be bought at each price. It is the fundamental data that the
demand curve represents. The law of demand explains this relationship. As I
mentioned earlier, it tells us that the quantity demanded will drop as the
price rises, but all other things being equal or staying the same. Again,
ceteris paribus.

The Demand Curve is a visiual representation of how many units of a good

or service will be bought at each possible price. It plots the relationship
between quantity and price that's been calculated on the demand schedule.
In conclusion, demand curves and demand schedules are both tools used to
summarize the relationship between quantity demanded and price.

Supply, by definition, is the amount of a good or service that producers are

willing and able to offer for sale at each possible price during a certain
period of time, anything else held constant. Supply can relate to the amount
available at a specific price or the amount available across a range of prices if
displayed on a graph. As mentioned, this relates closely to the demand for a
good or service at a specific price. With all else being equal, the supply
provided by producers will rise if the price rises because all firms look to

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maximize the profit. In microeconomics, supply is represented by a number

of mathematical formulas.

The Law of Supply states that with all else being equal, price and quantity
supplied of a good or service are directly related to each other. In other
words, when the price paid by buyers for a good or service rises, then
suppliers increase the supply of that good in the market. The law of supply
describes the producer behavior at the time of changes in the prices of
goods and services. When the price of a good rises, the supplier increases
the supply in order to earn profit because of higher prices.

Supply Schedule is a chart or table that tells how many units of something
producers will make, based on the current market price of a unit. „Units“ is
how economists refer to whatever good or service a buisness actually
produces. For example, loaves of bread, haircuts, singing telegrams. A simple
supply schedule typically has two columns: price and output.

Supply Curve is simply the supply schedule presented on a graph. The graph
has two axes, the vertical axis is the price and the horizontal axis is the
output, the quantity supplied. The supply curve will move upward from the
left to the right, which expresses the law of supply; as the price of the given
good or service increases, the quantity supplied increases, with all else being
equal.

Supply-Demand Equilibrium

With all of the principles explained, the equilibrium should now be easy to
understand. So, when supply and demand are equal, the economy is said to
be equilibrium. At this point, the allocation of goods and services are at their
most efficient because the amount of goods and services being supplied is
exatcly the same as the amount of goods and services being demanded. That
tells us that the economic situacion is perfect. Thus, everyone (firms,

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individuals, countries, big companies) are satisfied with the current

economic condition. At the given price, suppliers are selling all the goods and
services they have produced and consumers are getting all goods and
services that they are demanding. It's a win-win situation that can easily be
shown on a chart. The problem is, in the real market place, the equilibrium
can only be reached in theory. What happens in reality is the disequilibrium,
where the numbers of supplied goods and services don't match with the
demanded goods and services.

A good example of the economics of supply and demand can be found in

how tickets are sold. When promoters of big events want to sell tickets, they
price their tickets so that they can sell enough to fill the available seats.
However, there are always some people willing to pay more, especially after
all of the tickets have been sold out. Ticket scalpers seek to satisfy the needs
of these people by providing tickets at higher prices. Like the big event
promoters, ticket scalpers want to be able to sell all that they have.
Otherwise, they will have unsold tickets that will reduce their profits by the
amount paid for the unsold tickets. Althoug some people consider scalping
unethical, and in some places it is even ilegal, the ticket scalpers are simply
providing a service to people who really want to attend the given event, but
were unable to get tickets for any reason. Even though they are paying
higher prices, it is their will to pay a higher price to attend an event. After all,
scalpering seems to be a lucrative job because they manage to get profit,
and that's the most important thing in buisness.

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Sources:

1. Principles of Microeconomics, Michael Melvin, William Boyes

(Cengage, 2013)-used only as a guide
2. https://www.investopedia.com
3. https://economictimes.indiatimes.com
4. https://en.wikipedia.org/wiki/Supply_and_demand
5. http://smallbusiness.chron.com/supply-demand-analysis-727.html
6. https://budgeting.thenest.com
7. http://thismatter.com
8. https://bizfluent.com/about-5256732-analysis-demand-supply.html