Decoding The Whole Concept of Supply and Demand!

Hey everyone! Today's blog will be fascinating! In this blog i will make you interpret about the whole concept of Supply and Demand.

Have you ever wondered why the price of petrol and other commodities fluctuate? Ever wondered why is the production high and demand low, vice-versa? Have you been bewildered about the Law of Supply and the Law of Demand? You are at the right place! So, let's break these questions into simplest way:

What is Supply and Demand?

"Supply is the amount of a specific good or service that's available in the market. Demand is the amount of the good or service that customers want to buy." To understand this statement, you must know what a Market is? Market is place where Buyers and Sellers meet to exchange goods and services. Markets are based on Voluntary Exchange (the act of buyers and sellers freely and willingly engaging in market transactions). So, this is all about Supply and Demand.

What is the Law of Demand and the Law of Supply?

Let's take a hypothetical situation; where the price of onions are at ₹100 for 20 kg. What you think how many people are gonna to buy? All the people would buy the onions because the price is low. But, when the price of onions increases to ₹500 for 10 kg, then some people will go to buy other things. When the price is low, people buy more. This is called the Law of Demand: When the price goes up, then people buy less; when the price goes down, then people buy more. So, this example is the perspective from the consumer. Now, let's see the behaviour of producers when the price of onions goes up, here the producer will have an incentive to produce more onions because he is making more profit. But, when the price of onions goes down, then the producer will not have any incentive to produce more. This is called the Law of Supply.

Who Decides the Price of Goods and Services?

The price of goods and services are not determined by the government. It's determined by the Supply and Demand. Again, let's take an example; where the production of onion is low and the demand is high; the onions will become more expensive. And when the production is high, and the demand will be low; the price will decrease automatically. So, here emerges a question when is the production high and demand low, vice-versa. The production is high when the price of any good or service is high. When the price is high, the producer is making more profit. More profit means more production. Here the price is high, when the price of any product is high, the demand will be low. This mismatch is called Surplus. And when the price is low, the producer will not make more profit. Less profit means no more production. When the production is less and demand will be high. At the end, we have again a mismatch, but this one is called Shortage. Again, here rises a question when will be the supply and demand same? The situation where the supply and demand is equal is called Equilibrium Price and when the quantity demanded or supplied at equilibrium price is called Equilibrium Quantity. So, this is all about Supply and Demand. If you understand the concept of supply and demand, you have mastered half of the Economics.

If you can't understand — mail on ahtishamasiftantray@gmail where i will give you a live webinar.

*Written by Ahtisham Asif Tantray*

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