What is supply and demand? What can affect each?

By Vihan Singh2 min read · Posted Mar 4, 2023

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Have you ever seen the term Supply and Demand? Have you wondered what they mean? Or how closely related they are in the world of business?

Supply and demand is a critical business concept, as it explains how the market and contributing factors guide the flow of goods through the economy and keep the balance between these two mutable variables. The equilibrium point is when supply is equal to demand.

What is Supply?

Supply is a term that describes the total amount of goods and services readily available to consumers. Monopolies are formed if they completely control the supply of a good or service.

What is demand?

Demand is a term used to describe how much consumers want or desire a product or service. The higher the demand, the higher the profit. Companies tend to raise the prices of high-demand products/services to get more profit.

How are they related to each other?

Supply and demand are very closely associated with each other. There is less supply if there is more demand, and vice versa. Companies monitor the supply and demand of their products very closely to ensure that the need for the product/service remains high and that they have enough inventory to meet those high demands.

How can Supply and Demand be affected?

Supply and demand can be affected by various external factors like politics, geographical factors, etc. A great example would be how COVID-19 affected the supply and demand of different products and services.

The demand for multiple products and services like masks, PPE suits, medical services, etc., were off the charts, while hotels, airlines, and restaurants suffered huge losses due to very little demand. The supply of many necessary products and services like toilet paper was deficient due to high demand.

Conclusion

Supply and demand are prevalent everywhere, from basic local shops to multibillion-dollar companies. Companies and individuals constantly tend to balance supply and demand to prevent a total meltdown by having too many orders and being unable to fulfill them or having no demand and an overflowing inventory that can be expensive to maintain.

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