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Supply and Demand Analysis
Supply and Demand are one of the most fundamental concepts in Economics and are the backbone of the market economy. Demand is defined as the willingness to buy a product that is backed up by the money required to buy it. Put simply, demand is the desire to buy a product at a certain price. Supply refers to the number of products which is available in the market. The number of goods the producer is willing to sell in the market at a certain price. As we can observe that price is the common factor in both demand and supply, it is therefore the reflection of supply and demand.
Law of Demand:
The Law of Demand states that if all other things are constant when the price of a product increases, the demand for the product decreases. And when the price of the product decreases, the demand for the product increases. Demand and price of the product share an inversely proportional relationship. This is because money is a limited resource and people can’t spend money on just one thing alone. So, people try to strike balance between the money they possess and the costs that they can incur. Ex: The cost of a flight ticket from point A to point B is $1000 and the same journey on a train will cost $150, what will you choose? Naturally, people will choose the train.
Law of Supply:
The Law of Supply states that the producer wants to supply more of his product when there is an increase in the price of the product. As manufacturers produce more output, their total costs increase proportionately. The ratio to the total cost and the quantity of the product increases. This is the firm’s marginal cost of production. As marginal cost is the additional cost incurred to produce a good, the price of the product also rises and the firms will definitely charge more for the additional products produced.
A market attains equilibrium when both the demand and the supply intersect with each other. This can be shown in a curve. Here in the below curve, as we can see, the demand and the supply meet at point X. This is the point where the market attains equilibrium. This is the optimum point where both the consumer and the supplier get maximum satisfaction and profit out of the product respectively. It is the point where the market is in a stable condition.
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