In this post, I will explain to you what is demand and what is supply. At first, I want you to think that on a one-point that heavy of thought away the prices of goods or services that you buy are increasing or decreasing? If you have then I will tell you how it happens in most cases. We are living in a world where almost every place is becoming a marketplace. What do I mean by the marketplace? Most of you are familiar with the marketplace.
It is a place where some people want to buy goods and others want to sell their goods. But nowadays we have seen such markets where people are not physically present. But still, the same buying and selling happen. For example, stock market share market or currency market. Now the important thing to note here is people make the market. And there are mainly two types of people in the market. Consumers offer goods and services and sellers of goods and services. They both make this market. When a consumer goes to the market for buying goods or services, he is creating demand.
The consumers are buyers. They come to the market to buy some things some quantity of goods or services and pay a particular price. Hence the consumer’s generic demand for goods and services in the market. On the other hand, the producers or sellers come to the market to sell some things some quantity of goods and services and they receive a particular price in exchange for those goods and services. The suppliers or sellers generate a supply of good goods and services in the market.
What is Demand?
Let us first talk about demand then will your go-to supply. It is a quantity that a consumer is willing to buy at a particular price. Let me clear one thing here is that in microeconomics we generally talk about individual demand and individual supply. If we aggregate all the supplies and all the demand which we talk about aggregate supply and demand which we don’t we will talk about in macroeconomics. But in microeconomics so when I’m saying demand and supply, I mean individual demand and individual supply.
Here the demand is a quantity that a consumer is willing to buy at a particular price. If the price of particular goods reduces, you buy more quantities of the same good with the same budget. Yeah, it’s obvious because you have a limited budget. But you want as many goods as possible in that limited budget. So, if the price of a particular good which you like to buy reduces you tried to buy more and more quantity of that good in the same budget. Hence, the relation between price and the quantity demanded by you has an inverse relationship. If the price goes up you buy less of that good. If the price goes down you buy more of their goods. So, if we plot a graph of price was this quantity demanded it will be your dullness downward sloping go like the figure below.
Here you can see at higher prices you are buying lower quantities of a particular good and at lower prices you are buying higher quantities of a particular good. So, the demand curve will be a downward sloping curve and the prices that affect the demand are inversely related to their demand.
What is Supply?
Let’s talk about supply. It is a quantity that a producer or seller is willing to sell at a particular price. For example, if the price of the goods increases the seller will want to sell more quantity of the good because it will increase their profit margin. The production cost is fixed for the timing. But at that time if the price of that good increases he will try to increase his production to get the maximum benefit out of it because the profit margin has increased due to the increase in price and hence the price and quantity supplied has a direct relationship. Price increases quantity supplied will be an increase, price decreases the profit margin will not be attractive and hence the quantity supplied will decrease. If we plot a graph of price versus quantity supplied it will be an upward sloping curve like the graph below.
You can see at lower prices the supplier is supplying a lower quantity and at a higher price the supplier is supplying a higher quantity.
in the next post, we’re going to talk about the demand function and supply function and how the demand and supply depend on many factors, and how they behave when these factors change. To read this post click here.