Examples of Supply and Demand
Table of Contents
What is Demand?
A demand in commerce is defined as the number of goods or commodities consumers are willing to buy at a given price.
What is Supply?
A supply in commerce is the number of goods or commodities available to the consumers at a given time.
N/B: on the supply/demand curve, the point where the supply curve meets the demand curve is called Equilibrium.
Laws of Demand
The law of demand states that the prices of good increases as the demand for goods decreases. In other words, price is inversely proportional to the demand for goods.
For example, a consumer that used to buy 5kg of rice at $100 per kg will now demand 1kg as the price shoots to $120 per kg.
Understanding the difference between demand and the quantity demanded is very pertinent, as they are dissimilar. Quantity of demand refers to a specified point which is located on the demand curve which tallies with a specific price; while demand refers to the demand curve. Hence if a quantity demanded changes, it indicates a corresponding price change.
Laws of Supply
This law states that an increase in the price of commodity results in a corresponding increase in the quantity of commodity supplied, provided other factors are constant. It, therefore, means that the number of goods and their prices both have a direct relationship with each other, as they are directly proportional to each other. This also means that manufacturers are out to increase production as a way of making a profit by also increasing the prices of commodities and consumers will still buy.
Examples of Supply and Demand
This article discusses nine examples of Supply and Demand,
Services
Supply is basically limitless, this is because many firms spend a little to measure their services. Let us consider a business software which is sold as a user-based service on monthly basis; the global demand for this kind of software is one million user licenses with a 99% demand dropping to $300 per user, per month.
For a firm that charges $300 per user per month, only 1% of demand will be accessed by such firm. More so, the firm is more concerned with quality than in price even at a price below $300 which makes them insensitive to price.
Commodities.
A commodity is defined as the product Sold into the market, which is so competitive that even sellers and buys cannot influence the price of the product as such they must accept the price set by demand and supply. Price increases or decreases by a change in demand or supply.
The needs of consumers and their preferences are what determines the demand for products while the allocation of resources, capacity and efficiency are what determines supply. Hence, an increase in demand results in a corresponding increase in the supply of goods as an increase in prices of goods draws more firms to involve in the business as already existing firms strengthen or build up production.
Labor
A particular set of skill is dependent on educational and demographical factors. Factors such as technological changes, business cycles, recessions as well as economic growth determine the demand for manpower. In essence, when there is a high demand for manpower or labour, salaries become high. This high demand also, in turn, gives rise to an increase in the supply of labour as more people acquire more skill.
Products
Let’s consider an expensive or luxury brand which produces 10000 units of particular belts, it puts some restrictions on the supply of these products to maintain its high standards and price. Now five hundred thousand units of these products are demanded in the market at a price below $105. At five hundred units per month, it will take the brand five months to sell its inventory, at an actual price of $1500 per month.
Common Goods
Common goods comprise of the ecosystem, water and air which are readily available and in supply without cost. Demand for these goods increases steadily and because these common goods are in limited supply they decrease and become overused. But the application of cost on these goods reduces the demand for these goods.
Assets
Assets like gold or real estate mostly have fixed supply but also has a long term increase in supply. Factors such as interest rates, economic conditions, money, etc can cause demand to increase or decrease.
Currency
The monetary policies of nations control the supply of goods while investment flow and trade give rise to the demand.
Club Goods
A discovery park has a fixed capacity of 50000 people which represents supply. Here demand increases on holidays and weekends but decreases during workdays. Discounts are always available on works days because of the low turn up of people but on holidays where demand is low, there are no discounts.
Securities
A firm that increases the production and supply of goods definitely needs more security personnel, which increases the supply of security. Demand for security is determined by the estimate of investors concerning future risks and returns.
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