Supply and Demand

• Supply and Demand are fundamental concepts in economics and business. The relationship between supply and demand influences price and quantity of goods and services.

• Demand encompasses the quantity of a good or service consumers are willing and able to buy at a specific price. Demand can be influenced by factors such as price, income, tastes, and expectations of future price changes.

• Supply refers to the quantity of a good or service producers are willing and able to offer for sale at a certain price. Influences on supply can include the price of the good or services, technology advancements, input costs, and government policy.

• The law of demand states: as the price of a good or service increases, consumer demand for it decreases, and when the price decreases, demand increases. This typically creates a downward slope on a demand curve.

• On the contrary, the law of supply indicates: as the price of a good or service increases, the quantity of goods a supplier is willing to offer also increases. This typically results in an upward sloping supply curve.

• Market equilibrium occurs when the quantity demanded equals the quantity supplied. This equilibrium price and quantity represents a balance between consumer preferences and producers’ preferences.

• Price elasticity of demand measures the responsiveness of quantity demanded to changes in price. It’s categorised as elastic (high responsiveness), inelastic (low responsiveness), or unitary elastic (proportional response).

• Price elasticity of supply measures the responsiveness of quantity supplied to changes in price. If the response is high, supply is said to be elastic, while a low responsiveness leads to inelastic supply.

• Shifts in demand and supply curves can occur due to numerous non-price factors. For demand, factors could be changes in income levels, tastes or preferences. For supply, these may include technology advancements or changes in production costs.

• Understanding comparatives statistics can help decipher shifts in market conditions. If demand increases more than supply, this will raise the equilibrium price (and vice versa).

• Government policy can also intervene with supply and demand. Price floor and ceiling policies can establish minimum or maximum prices, while taxes and subsidies can change the cost of production and consumption.

• Both businesses and policymakers use these principles to make informed decisions about pricing, production levels, and policy approaches. A solid understanding of supply and demand fundamentals aids in making accurate predictions about market behaviour.