The free market involves many factors of the economy, but it is encompassed by two main ones, supply and demand. These fundamental concepts of economics are the basis for the decisions that large companies make which are imperative to their profits. The principle of demand refers to a consumer’s desire to buy goods and services and their willingness to spend money on it. An example to represent demand can be made using smartphones. If smartphones are sold for $3 each, a very cheap price, then a large number of consumers will purchase them at an often rate. People would even buy more smartphones than needed, putting one in every room, and even buy extra ones to store them away. Therefore, due to the fact that everyone can easily afford a smartphone, the demand for these products would stay high. On the other hand, if the price of a smartphone is set to $100,000, this would be a rarely consumed product due to how only the wealthy will be able to afford it, not ensuring constant buying. The other principle, the principle of supply, is defined as a resource that is provided and made available to people. Once again giving the example of the smartphones, if the costs to produce a smartphone are set to $10, the production would be unprofitable if it’s sold at $10. When prices of production are lower than the supplier, the supplier can not only sell at a lower price but can also produce much more of the smartphone itself.
Even though supply and demand are predicted by different companies, there are many factors that can come into play to affect these principles. Demand may be affected by many reasons and some of these include tastes and preferences due to surrounding opinion. It can also be affected by other goods or services that need or stop needing the product, the income, the number of willing buyers, and the expectations of the price (especially when there are discounts). On the other hand, factors that have an impact on supply include the resources needed to produce other goods prices, taxes, government regulations, technology, increases in productivity, expectations of the producers, and lastly the number of firms in the industry.
Demand and supply are often visually displayed in a graph that showcases, price vs. quantity. Here, the graph may portray different steepnesses on both the supply and demand lines. The supply curve, in this graph, is meant to increase due to the law of supply. The law of supply states that at higher prices, sellers will supply more of an economic good. On the other hand, the demand per price decreases following the law of demand which states that when there are higher prices, buyers will demand less of an economic good. This visual representation may not only represent the momentary data of supply and demand but also represents the changes that occur within these curves and in their Equilibrium. Equilibrium is the point that represents how much suppliers should charge for their products. One can find this point in the graph by looking at where both the demand and supply lines intersect.
In these graphs where supply and demand are represented, movements may occur to the existing lines. Movement refers to a change or shift along with the curve on a graph of price versus quantity. When the curve shifts right or left, it is implied that the demand-supply relationship remains consistent. But when the curve shifts it also denotes a change in both price and quantity demanded. Therefore, a movement along the demand curve will occur when the price of the good changes and the quantity demanded changes alongside it. If the demand curve shifts towards the left, it means the demand is increasing showing the same price for a smaller quantity.
Like-wise, a shift along the supply curve also means that the supply relationship remains consistent, and a shift will occur when the price of the good and the quantity supplied are affected. When there is a shift to the right, there is an increase in supply and a decrease in price which is beneficial to the consumers. As stated before, factors in a consumer’s perspective play a major role, but there are a number of reasons outside of this. A shift in the supply curve can occur for many reasons like a natural disaster, a mass shortage, or manufacturers that are forced to supply less of a product for the same price.
Overall, supply and demand are widely talked about topics in the business world and function as the basis for upcoming companies and models that have been working for years. Because of this, they are basic concepts that everyone should know and understand because of their role in the foundation of the worldwide economy.
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