Good morning everyone. Today we’re going to talk about two of the most important ideas in business and economics: demand and supply. These two forces affect almost everything in the market, from the price of a chocolate bar to the cost of an airline ticket. If you understand how demand and supply work, you’ll understand how businesses make smart decisions about pricing, production, and marketing.
Let’s start with demand. Demand means the quantity of a product or service that people are both willing and able to buy at different prices during a certain period of time. Remember, it’s not just about wanting something; people also need the money to buy it.
Several things can affect demand. The first one is the price of the product itself. Usually, when the price goes down, more people buy it. For example, if the price of smartphones drops, you’ll see more people rushing to buy them.
The second factor is consumer income. When people earn more, they can afford better or more expensive products. For instance, as household incomes rise, more families may choose private healthcare or branded goods.
The third factor is taste and preferences. These can change because of trends or social media. Think about how plant-based food has become popular because of health and environmental concerns.
Then we have the prices of related goods. If the price of a substitute product like Pepsi falls, fewer people might buy Coke. But if the price of a complement, like printers for computers, rises, people might buy fewer computers too.
Expectations about future prices also matter. If people think prices will rise soon, they may buy more now. For example, when people expect gold prices to go up, they often buy it in advance. Finally, advertising and branding can increase demand by creating awareness or emotional attachment to a product.
Now let’s move to supply. Supply means the quantity of a product that producers are willing and able to sell at different prices during a certain time. Unlike demand, supply usually moves in the same direction as price. When prices rise, businesses want to produce more because it becomes more profitable.
The main factors affecting supply include the price of the product, costs of production, technology, number of producers, government policies, and natural conditions. For instance, if the cost of fuel increases, airlines may reduce the number of flights they offer. On the other hand, new technology can increase supply. Automation in car manufacturing, for example, allows companies to produce more cars faster and at lower cost.
Government actions also influence supply. Taxes usually reduce supply because they raise costs, while subsidies can increase it by lowering costs. Natural conditions, like weather or disasters, can also affect supply, especially for agricultural products.
Now, demand and supply come together to determine the market price, also known as the equilibrium price. This is the point where the quantity that consumers want to buy equals the quantity producers want to sell.
Sometimes, markets are not in balance. If demand is greater than supply, we have excess demand, or a shortage. Prices will usually rise as a result. Think about limited-edition sneakers. When there are only a few pairs available and everyone wants them, the price shoots up.
On the other hand, if supply is greater than demand, we get a surplus. This often leads to price cuts and discounts. For example, if too many smartphones are produced and not enough people buy them, companies lower prices to clear their stock.
Changes in demand and supply also shift the equilibrium. For instance, if more people want electric cars because of environmental concerns, demand rises, pushing up prices. But if car makers increase production to meet that demand, supply rises, which may bring prices back down.
Marketing plays a very important role in all of this. Marketing teams work to increase demand by promoting products, designing attractive packaging, and setting the right prices. They also coordinate with production teams to make sure supply matches customer demand. For example, Apple creates excitement before launching a new iPhone to boost demand, while its production teams work to ensure enough stock is available worldwide.
To sum up, demand and supply are the backbone of any market. They influence prices, production decisions, and business strategies. When businesses understand how these forces interact, they can plan more effectively and stay competitive.
