Supply - Part 1

While demand looks at the consumer and their willingness and ability to purchase an item, supply looks at the producer. Supply is based on the voluntary decisions made by producers as to the amount of an item to offer for sale at any given price. Supply is defined as the amount of a product that would be offered at for sale at all possible prices that could prevail in the market.

The Law of Supply has a direct relationship between quantity and price, unlike the Law of Demand which has an inverse relationship. The Law of Supply states that the higher the price, the more supply will be offered and the lower the price, the less the amount of supply that will be offered. This should not be surprising, it is a simple matter of profit seeking. Read more

Demand - Curve & Diminishing Returns

Demand is often represented as the desire to have or own a certain item. Using this definition, anyone who would like to own a car could be said to demand one. In order for demand to be counted in the marketplace, however, the mere desire for a product is not enough.  This desire must coincide with the ability and willingness to pay. Only people that meet this criteria can be said to truly have demand. It is these individuals who will compete with others that have similar demands for the available products.

To illustrate demand we have two tools, the demand schedule and demand curve. The demand schedule is T-chart that shows quantity demanded at a given price. The demand curve uses the values provided by the the demand schedule to create a chart plotting the quantity demanded versus the price. While gathering precise data isn’t always easy, these tools provide a powerful method of analyzing the type of consumer demand for a product. Read more