The relationship between supply and demand is a fundamental concept of economics. A supply is the amount of a good that is present and available. A demand is the quantity of a product or a service that individuals want to purchase at a specific price. It is important to comprehend the factors that affect a supply and a demand because the price of a product or service can be the result of this relationship. Analyzing the individual characteristics of supply and demand can help to combine their qualities.
Examine the typical graphs associated with supply and demand. The graph for supply and demand has a line with a positive slope and a line with a negative slope. The x-axis is the quantity and the y-axis is the price. Both lines meet at a central point. Generally, when the price increases, the demand decreases. When the price increases, the supply decreases. Therefore, the price of a product or a service can affect a supply and a demand.
Consider the marginal utility of the good or service. Marginal utility refers to how satisfying the good or service is at a given period of time. For example, during the month of September, composition notebooks will have more utility because during this month, students are going back to school. As a result of this, the demand of composition notebooks will increase. The supply of composition notebooks will also typically increase.
Understand the concept of a surplus. A surplus is an excess amount. It affects the supply in the way that it causes an overabundance. Often, a surplus of a good or service results because it is not in high demand.
Make a connection between the amount of income, and that of supply and demand. If the amount of income for people decreases, then they will not be able to spend as much money. For example, with a lower amount of income, the demand for luxury items like perfume decreases. If less people purchase perfume, then the supply will increase.
Differentiate between normal goods and inferior goods. A normal good is a product that will be in higher demand when the level of income rises. An inferior good is a product that will be in lower demand when the level of income rises. For example, the leather jacket is an example of a normal good, and a cotton jacket is an example of an inferior good. When the income rises, more people will demand leather jackets, and therefore fewer people will demand cotton jackets.
Consider the number of stores that sell the same product. The greater the number of stores that sell the same product, the greater the supply of that product.
Analyze how environmental conditions can influence supply and demand. Natural disasters can cause changes in the supply and demand curves. For example, when there is a plant disease that destroys the production of a crop, then the crop will reduce in supply, yet the demand will remain the same.