The two driving forces of the market and also the economy, i.e. demand and supply. Demand implies the desire for a good, supported by the ability and readiness to pay for it. On the other hand, supply, alludes to the total amount of a commodity ready for sale. When demand rises there is a shortage in the supply and when a supply is enough the demand falls short, so there is an inverse relationship between these two elements.
Nowadays people are very selective regarding the things they use, carry and wear. They are very conscious about what to purchase and what not to? A little change in the prices or the availability of a commodity affects people drastically. A little disequilibrium in these two will cause the whole economy to suffer. Go through this article to understand the differences between demand and supply.
Content: Demand Vs Supply
- Comparison Chart
- Key Differences
- Factors Affecting Demand and Supply
- Demand and Supply for Money
|Basis for Comparison||Demand||Supply|
|Meaning||Demand is the desire of a buyer and his ability to pay for a particular commodity at a specific price.||Supply is the quantity of a commodity which is made available by the producers to its consumers at a certain price.|
|Inter-relationship||When demand increases supply decreases, i.e. inverse relationship.||When supply increases demand decreases, i.e. inverse relationship.|
|Effect of Variations||Demand increases with the supply remaining the same leads to shortage while demand decreases with the supply remaining the same leads to surplus.||Supply increases with the demand remaining the same leads to surplus while supply decreases with the demand remaining the same leads to shortage.|
|Impact of Price||With an increase in price the demand decreases and vice versa i.e. indirect relationship.||Supply increases along with the increase in price. So it has a direct relationship.|
|Who represents what?||Demand represents the consumer.||Supply represents the firm.|
Definition of Demand
In economics, demand represents the customer’s desires and preferences for a particular product, for which he is ready to pay. The quantity (how much) of the product is demanded at a certain price, i.e. the equilibrium between quantity demanded and price, is demand for a particular product.
Demand curve is an indicator of inverse relationship between price and quantity demand.
Definition of Supply
The amount of a particular product and services offered by the manufacturers or producers at a certain price to customers is known as supply. The quantity (how much) of the product is supplied at a particular price i.e. the equilibrium between quantity supplied and price is known as the supply of that commodity or service. It represents the firm.
Supply curve represents direct relationship between price and quantity supplied.
Key Differences Between Demand and Supply
- The equilibrium between the quantity demanded and the price of a commodity at a given time is known as demand. On the other hand, the equilibrium between the quantity supplied and the price of a commodity at a given time is known as supply.
- while demand curve slopes downward, supply curve is upward sloping.
- Demand is the willingness and paying capacity of a buyer at a specific price while Supply is the quantity offered by the producers to its customers at a specific price.
- Demand has an inverse relationship with supply, i.e. if demand increases supply decreases and vice versa.
- Demand has an indirect relationship with the price i.e. if price increases the demand decreases and if the price decreases the demand increases, however, the price has a direct relationship with supply, i.e. if price increases the supply will also increase and if the price decreases supply also decreases.
- Demand represents the customer’s taste and preferences for a particular commodity demanded by him, whereas Supply represents the firms, i.e how much of a commodity is offered by the producers in the market.
Factors Affecting Demand and Supply
- Price of the commodity
If the price of the commodity rises, then it is less demanded by the people, because people finds less utility in the product, and at that much price they can buy the other products having more utility for them. In this way, demand decreases while the supply increases.
- Price of inputs
The price of the inputs has a great impact on the price of the commodity, i.e. if the cost of production rises, it ultimately results in the fall of demand and supply for the goods will also fall because now at the same amount less quantity of goods are produced and vice versa.
- Price of related goods
It can simply be understood by an example- If the price of the petrol or diesel rises the demand for motorcycles or cars falls while its supply increases, but if the prices of petrol or diesel falls, then people can easily afford to travel on motorcycles or cars and this will result in the rise in demand while the supply decreases.
- Substitute Products
This can also be understood by an example- If there is a rise in the price of a coffee, then most people will drop consuming coffee and will start consuming tea this will suddenly affect the demand and supply for both the products, i.e. the demand for tea will rise and its supply will fall while the demand for coffee will fall and supply will rise.
- Personal Disposable Income
If there is an increase in the income of the consumer then a slight change in the price of the commodity will not affect its demand and supply. While, if the income of the consumer remains same or decreases, then a slightest change in the price will affect its demand and supply because the consumer have to spend more income on the same product which he was previously purchasing at a low price. In this way either he will demand less or will switch to some other product.
- Consumer choices and preferences
If the product offered by the supplier suits the consumer choice, then he will surely demand more and its supply will fall short because of its high demand.
Demand and Supply for money
The amount of money needed for various purposes, such as purchase of commodities, acquisition of land, hiring of labor etc, that creates demand for money in the economy. On the other hand, supply for money largely depends on the country’s credit control policies, which are governed by the banking system of the economy.
The market is flooded with several substitutes in each product category and a sudden rise or fall in the prices will have an impact on these products and their demand and supply may increase or decrease. In such a situation, an equilibrium must be maintained in the quantity demanded and the quantity supplied without neglecting the price factor at which the product is supplied.
The equilibrium in the quantity demanded and supplied will help the firm to stabilize and survive in the market for a longer duration while the disequilibrium in these will have severe effects on the firm, markets, other products and the whole economy will suffer as a whole.