Economics: Supply and Demand

Economics: Supply and Demand

“When an artist looks at the world, he sees color. When a musician looks at the world, she hears music. When an economist looks at the world, she sees a symphony of costs and benefits.” (Colander, 2004) There are certain things that a society’s economy needs. These things are supply and demand. Supply and demand is the balance between knowing what to produce and how much of it to produce. The more resources used, and people are willing to pay for, the more that is demanded.

“Economics is the study of how human beings coordinate their wants and desires, given the decision-making mechanisms, social customs, and political realities of the society.” (Colander, 2004) Economics can also be looked at as a social science that deals with the production, distribution, and consumption of goods and services. What and how much to produce, how to produce it, and for whom to produce it are three problems facing any economy. Another problem faced by an economy is the issue of scarcity. Scarcity means that there is not enough of a product to fulfill the wants or desires of consumers. Society can greatly influence this by having trends in certain areas. Clothing is something greatly influenced by society because people in one area will likely wear different styles than people in another area.

Demand can be directly related to prices, assuming all other factors remain constant. If there is a willingness to pay for a product, there is a demand for that product. The law of demand states that as prices rise demand falls and as prices fall demand rises.

As the price of an item changes, the desire to buy that item changes as well. For example, an individual really wants an item that they can’t afford. If the price is cut by half the individual is more likely to consider purchasing the item. That items demand will increase from the desire of other consumers as well, but when the price goes back up, the demand will fall greatly.

When all the supply and demand issues are in order and taken care of then the consumer gets what they want. Another factor in the supply and demand race is that of price. Price is what determines everything from how much is brought in to how much is exported. As the price of a good decreases the demand increases, so individuals and firms can rearrange their activities in order to supply more of that good to the market. For example, a farmer supplies goods to either a market or so a firm that will use it to complete another type of usable good. If he grows two types of good he will produce (supply) more of the crop that is paying more in the economy that season.

The law of supply states that quantity supplied rises as price rises, and quantity supplied falls as price falls, assuming all other factors remain constant. Factors of production are supplied to individuals or companies, which are transformed into goods and services. When there is a demand for goods and/or services, there are people and companies out there ready to supply that demand. In Utah there is a high demand for new homes right now. This demand requires the services provided by a general contractor not to mention the mortgage companies that are able to get you the money you need in order to purchase the home you want. The general contractor will then demand the services of subcontractors who in turn have employees that demand work. The subcontractors will supply their labor and services to the contractor so the general contractor can supply a finished product to the consumer.

Price is the tool used in the market to determine supply and demand, because prices limit how much of what product people are willing to buy. If anything other than price effects demand there is a change, or shift, in demand. Important factors that can cause a shift in demand are society’s income, the prices of other goods, tastes, expectations, and taxes.

As a person income increases, they will demand more because