Supply and Demand

What is supply and demand? Well when looking up the simple, straightforward definition the first one that pops up on Google is, “the amount of a commodity, product, or a service available and the desire of buyers for it, considered as factors regulating its price.” (wiki) In laymen’s terms it just means, the more a product is wanted by a person shopping, the more there will be of that product, and most likely at the highest, reasonable price, for the most economic gain. However, there is a lot more depth to that definition when you dig into it a little more.

Supply and demand is arguably one of the most fundamental concepts in a capitalist economy, and is the driving force of a market economy. To fully understand the whole concept you must look at each word individually first. Lets start backwards. Demand refers to how much desire there is by people to buy a product. Supply represents how much that a certain market can offer. Put them both together and another definition you get is, “the law of supply and demand defines the effect the availability of a particular product and the desire (or demand) for that product has on price.” Usually, a low supply but a high demand increases price. An example of that is the new iPhone that just came out. Only released once a year, the demand is crazy high, as well as the price. On the other end of the spectrum, the greater the supply with lower demand equals the lower the price for a product. An example of this would be say there is a shortage of strawberries in the winter because they are out of season, the price will go up because there is still a demand for them, but since there is fewer competition will raise the price. In the summer when there is usually a plethora of strawberries, consumers will most likely buy the cheapest ones, and in return that drives down the price because the more expensive ones wont be bought, and if this were a game, would lose the competition.

 

Supply and demand results in the price you pay for a product. Price is important to everyone. No one wants to spend a lot of money if you do not have to. The price, or cost of a product is determined by supply and demand in a certain market. The ending price which one pays for a commodity is the result of what is known as “equilibrium price”. The definition is “represents an agreement between producers and consumers of the good. In equilibrium the quantity of a good supplied by producers equals the quantity demanded by consumers.” In the end, there is almost always, or most of the time anyway, a happy medium between the producer and consumer for the price of a product.

 

Supply and demand is so important because in the end it is the driving force behind capitalism. Whether you hate it or love it, without supply and demand there is no free market or no government regulation. Everyone cares about the price they pay for a product, and what determines that price is essentially supply and demand. Of course there are many more factors that go into it, but in the simplest of terms, supply and demand is that driving factor of how much money you spend on a product. It affects everything about a product. From competition within businesses and corporations, to jobs, marketing and advertising to the group in which you are aiming your product towards, supply and demand has its hand in. Everything we know about modern day economics, capitalism, and markets seems to stem from supply and demand, and it is a very important definition to know.

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