Supply And Demand Definition, Its Factors & Examples

BANKING AND FINANCE, ACTIVELYSHARE.COM — Demand and supply are basic sciences studied in economics. What is meant by supply and demand?

Simply put, demand is the amount of goods purchased or demanded at a certain price and time. While the supply is a number of goods sold or offered at a certain price and time.

In economics, the theory of supply and demand or supply and demand is a description of the relationship between buying and selling transactions in the market between prospective buyers and sellers of an item.

Every trading transaction must have a demand, supply, price and quantity. When demand and supply meet each other will affect each other so as to form a unit price and quantity (quantity of goods).

In other words, those who act as demand are buyers while sellers act as supply. When a transaction occurs between a buyer and a seller, both of them will carry out a bargaining process until an agreement is reached at a certain price.

Demand

As mentioned earlier, demand is the amount of goods demanded in a certain market at a certain price level, a certain level of income and in a certain period.

In general the types of demands are grouped into two. First, demand is based on consumer purchasing power. Second, the type of demand is seen from who made the request or the number of consumers.

Factors Influencing Demand

The demand itself occurs due to several things. The factors that influence demand are as follows:

  • The price of the item itself
  • Changes in the price of related goods
  • Income level and people’s purchasing power
  • Population Consumer tastes
  • There are substitutes
  • Level of need for an item (intensity)
  • Fashion (trend)

Please to also read What Is Supply Is And Its Relation To Demand

Supply

In an economic sense, supply is the number of goods offered by sellers in a certain market, for a certain period and at a certain level.

In general, the types of supply are divided into two, namely individual supply and market supply. Individual bidding is an offer made by a seller in offering various quantities of goods at various price levels.

While the market supply is the overall supply obtained from the sum of individual offers of a good or service at various price levels.

Factors Influencing Supply

Like demand, supply is influenced by many factors. The factors that influence supply are as follows:

  • The price of the item itself
  • Price of other items
  • Cost of factors of production
  • Tech level Expected profit
  • There is a level of competition
  • Future hope

Please to also read Demand Definition & Factors Affecting It

Law Of Supply And Demand

If all assumptions are ignored (ceteris paribus): If the price is getting cheaper, the demand or buyers will increase. On the other hand, the lower the price, the lower the supply.

This happens because all want to seek satisfaction (profit) as much as possible from the existing price. If the price is too high then the buyer may buy a little because the money they have is limited.

However, for a seller with a high price, he will try to increase the goods sold or produced so that the profit obtained is even greater.

High prices can also cause consumers / buyers to look for other products to replace the expensive ones.

The law of demand is that the quantity of a good or service demanded will always be inversely proportional to its price.

That is, if the price of an item increases, the demand for that good will decrease, assuming factors other than the price do not change (constant). Vice versa.

While the law of supply is the relationship between the price of goods/services and the quantity supplied is positive.

This means that if the price increases, the quantity supplied will also increase. On the other hand, if the price falls, the quantity supplied of the good will also decrease on the terms ceteris paribus, that is, other factors are held constant.

Thus, the law of demand is that when the price of a good or service falls, the quantity demanded will increase. On the other hand, when the price of goods demanded increases, the demand will decrease.

The law of supply is the opposite of demand, namely when the price of goods increases, it will encourage an increase in the supply of a good or service.

If the price of a good or service increases, then production will supply more goods, on the contrary when the price decreases, they are reluctant to reduce supply.

That is an explanation of what is meant by supply and demand . It can be said that the supply and demand model is used to determine the price and quantity sold in the market.


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