What is Supply and Demand

When we speak of supply and demand we are in the sphere of economy. Supply and demand are related to prices, wages, the market, and the economy in general.

The law of supply and demand

The economic system that governs the economy is the capitalism and the set of economic activity It is known as the market, which is governed by supply and demand. Demand is the quantity of goods or services that consumers are willing to purchase in the market. Supply is the quantity of goods or services that can be sold at a given price at a given time. From the relationship between supply and demand, the price of a product or service arises. This means that if there is a great demand for a product and few offers, the price tends to rise, but if there is a lot of supply for a product, the price of the product tends to fall. This mechanism is known as the law of supply and demand.

The law of supply and demand is quite intuitive. It tells us that companies will be willing to offer at low prices very little of something but at higher prices it will offer more of a product. In other words, by increasing the sale price a company will be willing to sell more. However, with respect to demand something different happens, since the

consumer he will be willing to consume a lot if there are low prices and he will consume little if the prices are high.

In this way, if we put the supply and demand mechanism together in a graph that expresses its evolution It is observed that there is a point at which both questions come together, so that the supply is equal to the demand.

This implies a situation of Balance market, in which consumers and sellers reach a kind of natural agreement on the final price of a product. Obviously, such an agreement does not exist in reality, but rather the dynamics of the market itself.

The law of supply and demand is in turn related to the changes and transformations that affect the economy. Suppose a technology undergoes a significant improvement. In this case, this circumstance will affect the price of said technology (the technological product will be sold at a lower price and in a greater quantity). Let's take a concrete example: if in the automotive industry a more effective robot is used to manufacture vehicles, it will be possible to reduce the cost of each car and sell it at a lower price and at the same time produce more units.

Photos: iStock - mihailomilovanovic / milindri

Issues in Supply and Demand