Demand & Supply

Topics: Supply and demand, Consumer theory, Microeconomics Pages: 6 (2185 words) Published: October 8, 2013
In the market economy, the interaction of the buyers and sellers determines how the market will work. Buyers demand and producers sell for a particular quantity of goods and services at a certain level of prices. To Adam Smith, widely cited as the father of Modern Economics and Capitalism, in a free market, consumers are free to choose varieties of commodities, while producers have freedom of choice the commodities for sale and its production. Market settles on the price that maximizes the benefit of the consumers and producers, resulting in “Happiness of Mankind”.

Quantity demanded is defined as the number of a good or services that the buyer is able and willing to buy at a certain level of price. If a consumer has the ability to buy but it is not willing to buy or the other way around, demand is still considered as potential. An example of which is a “window shopper” who has the willingness to shop but has no money to spare. No transaction occurs for a potential demand. To convert potential demand to actual demand, numerous strategies suggest strategies like convincing, commercials, powerful slogans and salesmanship. In addition, in the advent of credit system, consumers need not have to hinder their willingness to buy because credit and loans are extended to consumers to facilitate the process of consumption.

Demand Schedule is a table or matrix that shows the quantity of goods purchased at a certain level of prices. The quantity demanded values are rates of purchases at alternative prices but it does not reveal at what particular price will actually exist in the market. The table only shows the quantity of stuffed animals this consumer is willing to buy to a corresponding price. The aggregate demand of a certain group of consumers is presented as the market demand schedule. Thus, demand tells us the purchasing behaviour of the buyer. The connection concerning price and quantity demanded for any merchandise can be characterised on a simple graph, in which by nature, we measure price and quantity demanded on the vertical and horizontal axes respectively. Relating the Curve from the Table 1, logically, people buy more at a lower price. A demand curve can be used to graphically represent the demand schedule. Any point on the demand curve reflects the quantity that will be bought at the given price. The demand curve is settled by linking these 10 points with a constant line. A normal demand slopes downward from left to right as shown in the Figure 1. Since price and quantity of goods bought have an inverse relationship, it shows a downward sloping curve.

From our observation of the demand curve and the demand schedule and with how the real world works, we can now state the law of demand as: assuming all other factors constant, when prices increases then the number that is demanded for the product decreases. On the other hand, if price decreases, the quantity demanded will increase. Why the counter-relationship concerning price and quantity demanded? Let us look at these three simple explanations: The law of demand is dependable with common sense. Individuals normally do buy more of a product when the price is low than when it is high. Price is a hindrance that dissuades consumers from purchasing. A higher price dissuades consumers to buy more, but at a low price, consumers will buy. In any specific time, each buyer of a commodity will spring less satisfaction (utility) from each succeeding unit of the product that is being consumed. Suppose you were craving for pizza, your first slice of pizza made you so happy that you consumed in seconds, thus you took another slice of pizza. However, this time, your satisfaction will be lesser as compared to your first slice of pizza. This is in economics we term such case as Diminishing Marginal Utility, in which succeeding units of a specific product produce less and less marginal utility. Consequently, customers will buy further items if the...

References: Besanko, D., & Braeutigam, R. Microeconomics 2nd Edition. New Jersey, USA: John Wiley &
Sons, Inc., 2006.
Pagoso,C. M., Dionio, R.P., & Villasis, G. A. Principles of Microeconomics. Manila, Philippine
Rex Bookstore, Inc., 2008.
Pindyck, R., & Daniel, R. Microeconomics. Pearson Education, Inc., 2008.
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