meaning of demand and supply, and market equilibrium. Demand maybe defined as the quantity of goods or services that consumers are willing and able to buy at alternative prices over a given period of time.
In economics, demand is quite different from want, or need. Want or need refers to a mere desire for a commodity but not backed up by the willingness and ability to pay for it.
In order to differentiate demand from need or want economists usually talk about effective demand.
what is effective demand
Effective demand is defined as a desire backed-up by ability and willingness to pay for specific quantities of a commodity at alternative prices and within a period of time.
If Mr. Bayo has the money to purchase a brand new car and is able to pay for it, then he has the effective demand for the car. Bayo therefore demands the car.
But if Mr. Okorodudu on the other hand desires to have a motorcycle and ill does not have money and therefore unwilling to pay for it, he merely wants or needs motorcycle and has no effective demand for it.
In summary, when a consumer’s demand backed-up by the necessary ability and willingness to pay, it is said to be effect demand.
But if the consumer does not have i means (money) to buy the commodity, it me he merely wants or needs or desires commodity.
Definition of Supply
Supply may be defined as the quantity of a; commodity that the producers are able willing to offer for sale at alternative prices of a given period of time.
In other words, the supply I of a commodity is the quantity of that commodity which a producer is willing and able to sell at a given price over a period of time.
The supply of a commodity is different from the total stock of a commodity which producer has produced. Supply simply refers only to the part of the total production ac offered for sale at the ruling market price and at particular time. This is referred to as effective supply.
Unlike demand, supply moves in 1 direction with price. The higher the prevailing in the market, the higher the quantity of a commodity that the producer is w: supply and vice versa.
In a perfectly competitive or free economy, prices are determined by the interaction of the forces of demand and supply. The determination of prices by the interaction forces of demand and supply is what is to as the price system or price mechanism.
As explained from the laws of demand and ply, it is known that the higher the price, the higher the quantity demanded while the lower ices, the higher the quantity of commodity demanded.
On the other hand, the higher the . the higher the quantity supplied.
But there f be a price at which the quantity demanded equals the quantity supplied. This price is known of equilibrium price.
Equilibrium of price
Equilibrium price is that price at which the quantity demanded is equal to the quantity of commodities supplied.
The point where the demand curve meets the supply curve is called equilibrium position or equilibrium point, quantity demanded and supplied at equilibrium price is called equilibrium quantity.
Under this condition, both producers (suppliers) and consumers (buyers) can be satisfied and will be no pressure on price.
THE LAWS OF DEMAND AND SUPPLY
Law of Demand
The law of demand states that all things being equal, the higher the price, the lower the quantity of goods that will be demanded; or the lower the price, the higher the quantity of goods that will be demanded.
This law is often regarded as the first law of demand and supply. It simply means that when the price of a commodity like yam, for instance, is high in the market, very few quantities of it will be demanded by the consumer and vice versa.
All things being equal, this law will hold under the following assumptions.
- That there will be no change in taste and preference of the consumer.
- That the consumer’s income remains constant.
- That no very close substitutes of a commodity exist.
- That he habits of consumers remain unchanged.
- That there is no change in the quality of the product.
Law of Supply
The law of supply states that, all things being equal, the higher the price, the higher the quantity of a commodity that will be supplied or the lower the price, the lower the quantity of the commodity that will be supplied.
This law is often regarded as the second law of demand and supply. This law explains that when the price of a commodity is high in the market, more quantity of it will be supplied by the producer and vice versa.
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