The Concept of Supply and Demand in Microeconomics

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Table of Contents

Introduction
Main body
Conclusion
References

Introduction

Supply and demand are the central concepts in the whole microeconomics. These two phenomena reflect the most important aspects of the conditions of this or that market. To be well aware of the most significant trends and happenings on the market, every person should pay attention to these concepts, and the present paper is an attempt to reflect the knowledge of the author on the topic of supply and demand in all their aspects.

Main body

Thus, supply is the quantity of the goods or services that are presented by their producers to the market at this or that price. The demand, which is basically, more important in this paradigm, is consequently the readiness of those who possess money, i. e. consumers, either to buy or not to buy the offered goods or services. As it is obvious from the definitions, these concepts are interconnected and possess such a common feature as price elasticity. This concept is the reflection of the readiness of the producers either to increase or to decrease the price for their goods or services respectively if the demand for them decreases (Ventas, p.217):

Diagram one — Diagram 1. Shows the decrease of demand (D) and growth of supply (S) with the increase of the price

To illustrate this in more detail, it is necessary to present the major law that rules the relations of supply and demand which is the law of marginal utility which states that consumers increase their demand for certain goods simultaneously with its price growth. However, when the marginal point of the price height is reached, the demand falls permanently reflecting the lack of consumers’ interest in these goods. Here, also the concept of elasticity comes into play with its price elasticity of demand and price elasticity of supply, which both reflect the change of price for a certain product or service in case of the change in demand, or the change in the supplied quantity of the goods in respect of the increase or decrease of price. Demand uncertainty is also considered in this respect thus allowing the producers to avoid risks of low demand rates for one of their goods by affiliating it with another one (Mathewson and Winter, p.566).

For example, Coca-Cola Company carried out such a policy in respect of its newly promoted beverage sorts in the middle of the 1990s which was called the Coca-Cola staff. It was conditioned by the low demand for the new production line of the company and it was decided that the shirts, caps, and accessories with the logotypes of Coca-Cola will improve the demand. The expectations turned out to be grounded and the successful affiliation of the goods in a huge supply with the one in a high demand brought its results in the sales that exceeded the rates of any other company in the United States for the period (Mathewson and Winter, p.573).

Conclusion

Thus, it is obvious that supply and demand, with proper attention paid to the price elasticity, are the most significant aspects of microeconomics. These concepts reflect the very essence of the market as the organization of people where one group of people (Sellers) want to sell their goods and another group of people (Buyers) decide whether to buy or not what they are offered.

References

Vettas, N. (1998). Demand and Supply in New Markets: Diffusion with Bilateral Learning. Rand Journal of Economics, 29(1), 215-233.

Mathewson, F., & Winter, R. (1997). Tying as a Response to Demand Uncertainty. Rand Journal of Economics, 28(3), 566-585.

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The Concept of Supply and Demand in Microeconomics

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