Difference Between Supply and Demand
Economists often talk constantly about supply and demand. These concepts are repeated ad nauseam in any discipline related to economics, but do we know the difference between supply and demand ?
In Economipedia, being a portal that focuses on the transmission of economic knowledge, we could not stay without presenting an article focused on the difference between these two well-known concepts. Two concepts that always go hand in hand, and even coin a theory, but they are not the same.
Therefore, this article offers a view of supply, as well as a view of demand. In addition, we will briefly review the law of supply, the law of demand, the factors that affect both concepts, as well as the curve through which both magnitudes are represented.
With all that said, here we go!
Supply is the amount of goods and services that bidders are willing to put up for sale on the market at specific prices. In other words, the number of products and services available in a given market.
More simply, supply is the amount of goods and services that various organizations, institutions, individuals or companies are willing to put up for sale. This, in a given market (a town, a region, a continent...) and at a given price, either due to the interest of the offeror or due to the pure determination of the economy.
Therefore, we are talking about the products that are for sale in a given market, which could be the Spanish or the Colombian, the computer market or the automobile market, or the wholesale or retail market.
What factors influence supply?
Thus, we must know that these available products are motivated by a series of factors. Depending on these, there will be a greater or lesser offer.
Among these factors, the following should be noted:
- Production cost : The higher the production costs, the lower the supply.
- Technology : Technological obsolescence can decrease our production, in the same way that innovation can increase production through increases in productivity .
- Expectations : Depending on expectations, a company will produce more or less, depending on what it anticipates it will sell.
- Institutional framework : The legislation or economic policies applied also affect supply. A de facto law could reduce the supply available in a matter of hours.
The law of supply
As we define it in Economipedia, the law of supply reflects the relationship between the quantity of a good in the market and its sale price in it.
More specifically, this law determines the amount of a particular good or service that is offered by producers, taking into account their rate. Usually the relationship between this quantity and the price variable will be direct or positive, contrary to the law of demand.
The supply curve is a graphical representation of the relationship between the quantity of a good that producers are willing to offer and its market price.
Here we can see one:
Demand is the request to acquire something. In economics , demand is the total amount of a good or service that people want to buy. In other words, the number of products and services that you want to buy in a specific market.
To go more to the point, demand is the intention that the different economic agents that are in a given economy have to buy, and this, in a given market.
Thus, and as in the case of supply, a market that can be the Polish or Belgian market, or the market for televisions and computers.
What factors influence demand?
As with supply, we must know that demand is also determined by a series of factors. Depending on these, there will be a greater or lesser demand.
Among these factors, the following should be noted:
- Price: The higher the price, the lower the demand.
- Supply: The lower the supply and the higher the demand, the higher the price. The higher the supply and the lower the demand, the lower the price.
- Place: There is always a transport cost attributable to the sale price of that product and that is directly proportional to the form or method of transport used. For example, it is cheaper to transport boxed products than it is to transport frozen fish on the high seas, where costs are high.
- The plaintiff's ability to pay: The greater the ability to pay or purchasing power, the greater the demand.
- Wants and needs: Both basic and secondary. Let's imagine that we have an urgent need to buy a product in a geographical area where it is not marketed. We, as plaintiffs, will offer a higher price for it.
The law of demand
The law of demand reflects the relationship between the demand for an existing good in the market and the quantity supplied of the same based on the price that is established.
Its study allows to deduce in a simple way the quantities of the products that in a market are accessible to consumers at different price levels.
Normally, this relationship between price and quantity is inversely proportional.
The demand curve is the graphic representation of the relationship between the price of a certain good or service and the amount of demand motivated by consumers.
The demand curve is very useful for studying the effect of prices. It is represented from a graph where the relationship between the level of demand and prices is collected, this being decreasing by the inverse relationship.