Demand and Supply

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Demand and supply

The term demand refers to the quantity of a given product that consumers will be willing and able to buy at a given price. As a general common sense rule - 'the higher the price of a particular product the lower will be the demand for it'. The term supply refers to the quantity of a particular product that suppliers (producers and/or sellers) will make available to the market at a particular price. The higher the price, the greater the quantity that suppliers will be willing to supply to the market.

Markets consist of individual or groups of businesses that are prepared to supply a product, and customers who demand the product. Market price is determined by the interaction of the forces of demand and supply.

Demand and supply can be illustrated by schedules and curves that illustrate how quantities demanded and supplied will vary with price.

Demand and supply curves for a tabloid newspaper (e.g. the Independent or Times).

The table above shows a schedule of demand, for tabloid newspapers each day. You can see that:

At a low price (35p) a much higher quantity is demanded (800,000) than at a higher price (e.g. 60p) where only 300,000 would be demanded.

The table also shows a schedule of supply. The tabloid newspaper supplier is prepared to supply greater quantities at higher prices to the market. This is because at higher prices it becomes more worthwhile to pay the higher charges required to pay printing firms who have to hire extra staff to work unsociable night time hours to pack and distribute the finished papers.

At a high price (60p) the newspaper is prepared to supply 600,000 papers, while at a low price it will only supply 350,000.

This information can graphically be illustrated in the form of demand and supply curves. The illustration below shows the same information as in the schedule but in a graphical form.

Note that demand slopes downwards from left to right, and supply slopes upwards from left to...
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