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Supply and Demand in Economics

Supply and demand exist concurrently. As supply is the provision of goods or services required, demand is need or want of people for a specific kind of services or goods. Supply and demand therefore is an economics activity that controls economic activity and prices. The relationship between the two is used to make very important business decisions on expansion and pricing as these are directly affected by the supply and demand concept.

There are many different consequences on change in supply and demand that either affect the consumer or the supplier. When demand rises and there is excess demand, the prices rise to attract only the appropriate number of people who can afford. This will in turn maintain the equilibrium as the raising of the price regulates the demand downwards to a point where demand and supply are equal. This is true only if the rest of the influences are constant. When the demand is low, the suppliers will in turn reduce there prices. The reduction of prices will attract more customers and these are increasing demand. Demand is increased only to a point of equilibrium and not below it. If it goes too low then the demand will become higher than the supply. All this is done if all other influences are constant. Therefore the law of demand that states that quantity of demand rises as prices fall is elaborated above when others remain constant. Supply rises when the demand rises to create a point of equilibrium when the rest of influences are constant, this is achieved by increasing prices and with the decline with demand there is decrease in prices in order to increase the demand.

The changes in supply and demand can be caused by various things. The change in demand influence the change in supply so if there is alteration in demands there will alternately be change in supply. Price is one of the major factors that affect supply and demand. Price influences because it is the point of exchange between supply and demand. The higher the price the lower the demand as it will attract the group that can afford which is not a large number and the higher the supply as there will be surplus in the market. When price lowers then the opposite occurs and the demand rises causing a shortage of supply in the market.

This is different in other cases, when demand is constant then prices go up as they improve the supply to attract more demand hence the rise in price gives rise to a rise in demand. High prices in supply are caused due to production or maintenance costs therefore high prices also act as an incentive to supply more hence the higher the prices the higher the supply, we can also look at pricing at another angle, when the prices fluctuate frequently the government regulates the market to protect the consumers. The government set price ceilings which the suppliers must not go above. These price ceiling affect the supply and demand if they are set below or above the equilibrium. If it is set below equilibrium then the demand will become higher than supply and if it is set above equilibrium then supply will be higher than demand. The government might also set price floors to protect the suppliers, this will affect if it set too low below the equilibrium.

Competition also affects the supply and demand. Competition gives the customers a choice and if they prefer the competitions product to yours then the competition will reduce the demand in the market therefore forcing the supplier to reduce costs to raise the quantity demand they have got. Development of an area creates more inflow of people who in turn rise the demand of some products and in turn reduce the supply forcing the suppliers to rise there prices to balance the market. The pays scale of employees in the area also affects as the higher the pay scale the higher there demands in terms of convenience and quality hence the higher the supply costs so as to meet the demand requirements and increase demand.

A shift in supply and demand, as we have seen, affects the costs, quality and competition grounds. One has to consider the infatuation in supply and demand to make very important business decisions. If the supply is high, demand is low or competition is high then the prices are low so one can maximize on getting the amount of supply at this time so as they can maximize profits or savings and vice versa. These shifts affect everyone who is saving conscious and profit minded, everyone economical, in making there decisions.

As we have seen in the above context, the supply and demand concept rallies the achievement of equilibrium at the end of it all so as both supplier and consumer get what they deserve in the market. Considering competition, government regulations, area development on demand increase and expectations of the consumer the supplier regulates the prices as to the requirements of the demand and their own profitability set a price favoring all. The study of demand and supply is important in order to achieve this goal. As we can see this study is important in almost all scenarios since in any business there will be a demand and a supply to meet. Whether it is in the service industry or in the goods market the need will be there. We can take an example of a private school to elaborate on this point. We can pay a high amount of school fees to obtain quality education, after we pay it is up to the teachers to supply the quality of education demand we want if not we move on to the completion and reduce the school demand in the market, hence the school will have to reduce there fees to attract more students or loose revenue. This action will make other high paying students leave as the school will dilute its quality standards they were paying for as so on.

Supply and demand is a sensitive issue in marketing and in economics and should be considered in every marketing decision and every business decision in general.


James Waweru. 1992, Introduction to Economics , Nairobi, Kenya. K.I.E publishers. Malkiat Singh, et al. 1995, Economics, 2nd Ed, Calcutta, India.

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