Posted in Finance, Accounting and Economics Terms, Total Reads: 363
Supply and demand are the fundamental concepts of the modern economy. Supply is a fundamental economic concept that states total amount of goods and services available for consumers for purchase at a specific price. Supply is closely related to the demand of the product and affects its price. Economists define supply very precisely that supply can be described as a relationship between the quantity of goods or services offered for sale to consumers and the price charged for the same.
• Price where suppliers want to charge highest price and buyers want to pay the lowest and they settled down at equilibrium point where supply meets demand
• Cost of inputs – lower the input ensures higher the profit at settled price
• Price of other goods- other competing products or substitutes affect the supply of the product
Each product and service has its own pattern of supply and demand dependent upon price, consumers preference and utility of the product. When product is in great demand producers tend to produce more and vice versa. So basically demand creates supply. Ideally markets reach an equilibrium point where demand meets supply and both consumers as well as producers get maximum profit.
Law of Supply is an important term stating relation between quantity supplied and price of the product. It is defined that by keeping all factors constant, price and quantity supplied is directly related to each other.
For example- When price of a kg apple is Rs 60, quantity supplied weekly is 300 kg. When price is dropped to 50 Rs per Kg then supply is changed to 250 Kgs per week