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Offer and demand

Differences between Supply and Demand
Differences between Supply and Demand

The Differences between Supply and Demand is given here. Supply and demand are delicate economic concepts on which the equilibrium of companies and even entire nations depend. The supply is the number of products or services that are offered in the market and the demand is the number of goods or services that consumers want to purchase in the market.

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DifferencesOfferDemand
DefinitionIt is the number of services or products that a producer offers in a market.It is the number of goods or services that consumers want to purchase in a market.
Characteristics and factors that influence themQuantity of a good or service for sale. It depends on the market price. Its sale occurs at a specified time. It depends on the price of other goods. It depends on the costs of production, size of the market, the volume of demand, the legislation and economic policies of the country, and the available production technology.It is the number of goods that consumers want to buy. It depends on the price of goods. It depends on the level of wealth of the applicant. If it decreases, it is because the price has increased. It depends on the substitute and complementary goods and the consumer’s preferences and their expenses.
Market laws: Law of supply and demand. It relates both concepts allowing producers and consumers to determine the price at which a good or service is marketed.Law of supply: faced with an increase in the price of a good and if we are in a competitive market, the price of that goodwill be higher. It can be summarized as a higher price, higher offer.Law of demand: establishes the relationship between the price of a product and consumer demand. If the price is high, the demand will be low and if the price is low, the demand will be high. It can be summarized as a higher price, lower demand.

Offer

In economics, the supply is the number of goods or services that a producer is willing to sell under a certain market condition.  When the market price and supply conditions are related forming the supply curve.

When a product offered has a high price, the profits will be higher, this stimulates greater production. Of course, if a price is low, the supply is reduced because there is no higher profit incentive for the producer, that is, there is no increase in the profitability of the product.

What can affect the offer of a product?

The offer you find in a market will depend on the sale price and other factors such as:

Production costs: if the cost is the most suitable for production, the supply will increase. If the costs are not profitable, the supply will decrease.

For example, if you want to make many chocolate bars and the raw material for this material, cocoa, has a reduced price, you can increase production, and with it the product offer. On the other hand, if the price of cocoa rises for any reason, it will not be profitable to increase production, since you will have to raise prices too much and with it, the demand for the product will be reduced.

Technology: if obsolete technology is used, the production of a good may be reduced, this will cause the supply to below. If, on the contrary, there is an innovative technology that simplifies processes and reduces the cost of production, the supply will increase.

For example, if your chocolate factory has an old packaging machine, which takes hours to pack the chocolates and consumes a lot of electrical energy to heat seal the packages, you will have a high production cost in addition to very low production. If you invest and buy updated machines, you will pack more chocolates in a shorter time and for a lower cost.

Economic legislation and policies: countries have laws that regulate economic activities. Changes can arise in these laws, they can be flexible or inflexible and this affects the supply.

For example, if in the country in which you market your chocolate bars, legislation arises that controls the price of the item and this price does not generate the expected profitability, does not satisfy production costs, and does not allow you to invest in economic improvements, you will find it impossible to increase the offer so you will reduce it to a minimum that allows you to subsist until a change occurs or the law can be discussed. In an extreme case, you would be forced to close your business.

If, on the contrary, a tax exemption arises for cocoa producers, reducing the price of this raw material, not only will they increase their production, but so will you.

Sales expectation: represents the number of goods that are projected to be sold in a given period. To achieve this, you need to carry out the necessary market studies to estimate what may happen in the future with consumer demand.

If the market study gives a positive answer, then you will increase production. If not, you will reduce production to avoid losses.

For example, you can do a market study to estimate how many people will buy your bars for Valentine’s Day, if the answer is positive, you will increase production for the month of February. Otherwise, it would happen in the last months of spring, when all your consumers go on a diet and do not consume as much chocolate. So, you must reduce production to avoid product losses.

What is the law of supply?

It is one that defines the relationship between the demand for a product and the quantity that exists in the market. It is defined by the price of the product and is positive when there is greater availability of the product at a higher price.

To represent the relationship between available products and the sale price, the supply curve is used. This is represented in a Cartesian plane, X-axis, and Y-axis, where the curve is constructed with the intercept of the price and quantity of the product. If the curve is upward, we have a positive relationship (higher price, higher supply) if the curve is downward we have a negative relationship, that is, lower price, and lower supply.

In the market, it is accepted that the price and the quantity supplied are determined by an equilibrium between supply or demand.

Demand

It is defined as the total amount of goods or services that can be purchased at various market prices by one or more consumers.  Demand is a mathematical function that can be graphically expressed as a demand curve.

The slope of the curve determines how demand increases or decreases when price increases or decreases.

Demand can be affected by the price of the product or the price of other products or goods, sociological factors, supply, and personal taste. The relationship between demand and price is inversely proportional, that is, the higher the price, the lower the demand, but the lower the price, the higher the demand.

What factors can affect demand?

In the case of demand, price is of vital importance, but there are other aspects that influence demand:

The income of the population: if the income of the population is high, the demand for products and services will increase, since there are sufficient resources to pay for them. If income goes down, demand will go down, because purchasing power is low.

For example, if the country where you have your chocolate factory experiences economic growth and salaries increase, you will perceive a greater consumption of your product. If, on the contrary, unemployment and inflation rates increase, demand will decrease.

Tastes and needs: the taste and need for your product determine the demand. Sometimes tastes vary according to the fashions and trends of the moment. The need depends on the basic requirements of the people, for example, you will always need food, clothing, and shoes. They will always be products in demand, but the quantity demanded, the type, model, and style will depend on the tastes of the consumer.

For example, chocolate is not a necessity, but it is liked by many people. The demand will increase when the consumption of chocolate is a trend, for example, on Valentine’s Day.

Composition of the population: demand is affected by demographic factors, that is, by factors such as age and sex.

For example, if you market your chocolates in a place where there are many older people who, due to their age and health problems, should avoid sweets, the demand will not be as high as if you sold them in a place with a young population.

Future expectations: this depends on microeconomic factors, such as the family budget, and macroeconomic aspects such as increased salaries, inflation, greater availability of raw materials.

For example, if an increase in the price of chocolate is announced because cocoa will increase in value, it is normal for the demand for the chocolate to rise, as people will want to satisfy their needs before the price rises.

What is the law of demand?

It is one that establishes that, if a price is high, the demand will be low and if the price is low, the demand will be high. For example, if a new variety of specialty chocolate arrives, it will be more expensive and its demand will be reduced, but when the novelty wears off, its price will decrease and demand will increase.

It is represented by the graph of the demand curve. It represents the number of goods demanded at a given price. If the curve is downward, the graph shows that the price is inversely proportional to the demand, that is, the lower the price, the higher the demand.

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Differences between Supply and Demand

  • Supply is the number of goods or services that a producer is willing to sell at a certain price.
  • Demand is the number of goods or products that a consumer is willing to purchase in the market.
  • Both concepts are plotted as curves. There is a point at which they equilibrate, indicating an equilibrium in the market.

Law of supply and demand

It is a model of economic theory that relates to the price of goods and services and the demand for them. This model indicates that, in an ideal situation in which companies cannot directly intervene in the price of their products (perfect competition market), there will come a time where an equilibrium will be reached where a price will be established where everything offered will be the defendant.

This allows defining that the price of the product depends on the relationship between the quantity that is offered and the demand for this product.

The law of supply and demand states that:

  • If demand exceeds supply, the price will increase. If the supply is greater than the demand, the price will decrease.
  • An increase in price increases supply but reduces demand. A reduction in price reduces supply but increases demand.
  • If demand equals supply, the price is balanced.

This law has been criticized, because it is based on markets with perfect competition, something that does not appear in reality, and understands demand and supply as independent variables. If these factors are eliminated, the model cannot be sustained. However, the law of supply and demand continues to be used to explain the reality of world markets.

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