There request el’offer are two fundamental concepts ofeconomy whose relationship explains the behavior of consumers and sellers on the market: i consumers (demand) purchase goods with the aim of satisfying their desires and needs (based on specific preferences and therefore choices). THE sellers (supply) put goods on the market with the intention of maximizing their profit. In general theoretical line, when one of the two quantities decreases the other increases and vice versa. Sellers and consumers are both driven by the drive to obtain the maximum advantage possible for themselves. THE’market equilibrium occurs when the quantity demanded of a good at a certain price is equal to the quantity supplied of the same good at that price.
What supply and demand mean
There request refers to amount of a good or service that i consumers they are willing to acquire at a certain price level.
Let’s do a example with the purchase of t-shirts: If the price of a t-shirt is low, more people may want to buy it for convenience. If the price is high, fewer people will probably buy it. So, in general, when the price of a good falls, demand tends to increase (because more people want to buy it). This phenomenon is called law of demand.
The question may be influenced by many factorssuch as, for example, the increase in consumer income (if I have more money I might want to buy that good even if the price is unchanged), or due to a change in tastes (if I no longer like that t-shirt or it doesn’t fit more fashionable, I might never want to buy it again).
THE’offer refers to amount of a good or service that sellers are willing to sell at a certain price level.
Also in this case we do a example with them t-shirts: if the price of a t-shirt is high (and there is demand), producers will tend to be encouraged to produce more, to earn more. If the price is low, they may produce less to create a need. In general, however, when the price of a good increases, supply tends to increase, because producers are incentivized to produce more, selling the goods at a higher price, as they will have a greater economic return. This phenomenon is called law of supply.
The offer can also be influenced by many factorssuch as the increase in production costs (if the costs of producing that good increase, it could become less convenient to produce at that price), or if there is a technological improvement in the production of that good that saves time and/or money. In this case, manufacturers will be incentivized to offer more. Another influencing factor is the climatic one (think of drought or floods) which can influence the quantity of supply to be produced (think of the supply of agricultural goods, which is strongly influenced by a good harvest in the fields).
How supply and demand relate
As we have said, the price at which that good is sold and the quantity that is sold are determined by the interaction between supply and demand.
Supply and demand meet at a point called “equilibrium point“. At this point, the quantity that consumers want to buy is equal to the quantity that producers want to sell, and the price that is formed is the consequent “equilibrium price“.
Example: if 100 t-shirts are requested at 50 euros each and 100 t-shirts want to be sold at 50 euros each, both supply and demand are satisfied, we find ourselves at the equilibrium point.
The variable trend of supply and demand on the market
Let’s hypothesize some scenarios to show the continuous change in supply and demand for goods and services on the market.
If demand increases (for example, because more people want to buy a product), the price tends to rise, and then producers will try to offer more, trying to exploit the fact that, at a higher price, they would earn more by producing more. All until a new balance is reached.
If it is the offer to increase (for example, producers start producing more goods) but instead demand remains stable, the price tends to fall, because there are more goods available on the market and consumers do not have to compete as much to buy them. Therefore, in order to avoid the risk of having unsold goods, the manufacturer lowers the price.
If the price of a good is higher than what consumers are willing to spend on average for it, we will have a excess supply. So, manufacturers will lower the price to try to sell. Example: if the price of the t-shirts is 70 euros each but consumers don’t want to buy them, the producers lower the price in order to sell them.
If the price of a good, however, is lower than the price at which it would be convenient for sellers to sell to obtain the desired profits, we will instead have a excess demand (everyone will theoretically want to buy at such an affordable price). So in this case, manufacturers will likely increase the price to try to make more money. Example: if the price of the t-shirts is 10 euros each, everyone will want to buy them, but the producers may not be willing to sell as many t-shirts at that price, so they will increase the price until they reach the equilibrium point.
We can think of supply and demand as two lines curves which intersect at a point, determining the right price and the right quantity produced and requested. The intersection point is precisely the equilibrium point, where the quantity supplied is equal to the quantity demanded, and the resulting price is the equilibrium price.
