To understand the market mechanism, one needs to have a good knowledge of demand and supply, as these two forces regulate the entire market. Demand implies the desire for a good, supported by the ability and readiness to pay for it. On the other hand, supply alludes to the total amount of a commodity ready for sale. Show When demand rises there is a shortage in the supply and when a supply is enough the demand falls short, so there is an inverse relationship between these two elements. Nowadays people are very selective regarding the things they use, carry and wear. They are very conscious about what to purchase and what not to? A little change in the prices or the availability of a commodity affects people drastically. The demand and supply model is helpful in simplifying how the price and quantity traded are ascertained in the market as well as how the outside forces affect the demand and supply of the commodity. Go through with this write-up to get a clear understanding of the difference between demand and supply. What is a Market?Any arrangement wherein two parties, i.e. a buyer and seller are brought together to enter into an exchange of goods and services for money. Also Read: Difference Between Industry and Market Content: Demand Vs SupplyComparison Chart
Definition of DemandDemand is the customer’s desire for a particular product, at the given price, which he/she is ready to buy in one market at different prices during a given period of time. So, there are two aspects of demand:
The demand of the customers depend on their needs and wants. Further, to constitute an effective demand, there must be
For example, A beggarman also has a desire for food and clothes, but he does not have the money to buy them, so it does not amount to an effective demand. Law of DemandWhen there is a rise in the price of the product, the customers demand less quantity, whereas when the prices fall, the demand for the product will rise. Here, you can see in the graph, wherein the vertical axis represents the price of a commodity, and the horizontal axis indicates the quantity demanded. The demand curve is an indicator of the inverse relationship between price and quantity demand. Also Read: Difference Between Demand and Quantity Demanded Definition of SupplySupply implies the quantity (how much) of a product or service which are offered by the manufacturer for sale at various prices to the customers, during a given period of time. So, there are two determinants of supply:
It should be noted that supply is anything that the firm has offered for sale in the market. Law of SupplyWhen there is an increase in the price of the commodity, the quantity of the products produced and available for sale will also increase, and when the prices drop, the supply also decreases. this is due to the fact that the higher the price, the higher will be the profit margin. Here in the graph, the vertical axis represents the price of a commodity, and the horizontal axis indicates the quantity supplied. Supply curve represents a direct relationship between price and quantity supplied.
Upcoming points will explain to you the difference between demand and supply:
Video: Demand Vs SupplyDeterminants of DemandThe demand for a good or service is determined by the given factors:
Determinants of SupplyThe supply of the good or service is determined by the following factors:
Equilibrium PointThe equilibrium point is a situation in which the quantity demanded and quantity supplied intersect, representing equilibrium price. It is the point at which the buyers and sellers, both are satisfied. Also called as the market equilibrium or market-clearing price. Let’s have a look at the example:
Have a look at the graph representing the demand and supply for the commodity at different price range: Here you can see that at point ‘E’ both demand and supply curve intersect each other. The equilibrium in the quantity demanded and supplied will help the firm to stabilize and survive in the market for a longer duration while the disequilibrium in these will have severe effects on the firm, markets, other products and the whole economy will suffer as a whole. ConclusionThe market is flooded with several substitutes in each product category and a sudden rise or fall in the prices will have an impact on these products and their demand and supply may increase or decrease. In such a situation, an equilibrium must be maintained in the quantity demanded and the quantity supplied without neglecting the price factor at which the product is supplied. |