Supply and Demand

The word economy is taken from a Greek word meaning ‘household management”. The main aim of the economy is to determine how scarce resources are allocated among those who are living and participating in an economy i.e. to fulfill the needs and wants of humans. In an economy, producers are the ones who need money for the product they produce and consumers are the ones who need products to use and decide how much they can pay for it. 

In 1776 Adam smith an Scottish philosopher, also known as the father of modern economics wrote his famous book ‘The wealth of nations.’ He and his contemporaries believed that economics evolved from prehistoric barter system to money-driven and eventually credit-based economy. Economics has two main branches- macroeconomics to study economics on a large scale and microeconomics to study economics on an individual level.

The basic concepts related to economy are- scarcity, supply and demand, cost and benefits. They help us to understand how the economy works.

Scarcity 

Scarcity is considered the most important topic in economics. As a result, scarcity might limit the options available to customers, who make up the economy in the end. Understanding scarcity is important as it tells us the value of resources. Things that are considered to be scarce in the market are of high value. Producers sell scarce resources at high rates. The vendors understand the strategy of the market in order to obtain high profit they charge high rates for scarce products and services.  

Consumer decisions are influenced by the scarcity of products and services, which is a key variable in economic models. The economy of any location is decided by the decision of individuals and corporate sectors on what they should produce and what is the percentage of people who can afford it.  

In a country, scarcity arises due to the lack of goods and services in that country. There are many available resources in a country to fulfill the needs of its citizens. The resources to fulfill the need may include workers, government and private company investment, or raw materials (like trees or coal). The allocation of resources is decided by government or private companies. Allocation of resources can be done on the basis of what consumers need or want, what the government needs, and what will be an efficient use of resources to maximize profits. Countries also import resources from other countries and export resources from their own. 

Scarcity can be purposefully generated. Governments, for example, have authority over the printing of money, which is a valuable commodity. However, because paper, cotton, and labor are all widely available around the world, the resources required to manufacture money are not scarce. If governments issue too much money, the value of their currency tends to fall as it becomes scarcer. Inflation can occur when an economy’s money supply is excessively high. Inflation indicates that the amount of money required to purchase a good or service increases, making money less valuable and allowing the same amount of money to buy less over time. As a result, the supply of paper money is something best in the interest of the country. 

Supply 

Supply is referred to as the number of resources provided by economic agents like – firms, producers, financial assets, etc. In an economy, supply can be of produced goods, labor time, raw materials, or any other scarce or valuable object.

 While supply can refer to anything in demand that is sold in a competitive marketplace, supply is mostly used to refer to goods, services, or labor. The factor which actually affects the supply in the market is the price of goods which are being supplied. Price of a commodity depends upon the supply of a commodity. If the price increases so will the supply. The price of related goods and the price of inputs (energy, raw materials, labor) also affect supply as they contribute to increasing the overall price of the goods sold.

In microeconomics, supply is represented by a set of mathematical formulas. The link between supply and influencing factors can be expressed by supply function and equations, as well as inflation rates and other market impacts. The relationship between the price of the commodity and the quantity supplied is always described by a supply curve. A supply curve can reveal a plethora of information, including price elasticity, movements (induced by a change in price), shifts (caused by a change that is not connected to the price of the commodity), and shifts (caused by a change that is not related to the price of the good).

When the price of a product rises, manufacturers are more willing to produce more of the product in order to achieve more profits. Likewise, falling prices have a negative impact on output since manufacturers may not be able to recoup their input costs when they sell the finished good. Take Television manufacturer as an example , if the input costs to manufacture a TV are set at $50, plus the variable costs of labour, then production would become highly unprofitable as soon as the selling price of the TV fell below the $50 threshold.

Demand 

A consumer’s desire to buy products and services, as well as their willingness to pay a price for them, is referred to as demand in economics. A rise in the price of a good or service will lower demand if all other variables remain constant, and vice versa. The total quantity desired for a given commodity by all consumers in a market is known as market demand. The overall demand for all products and services in an economy is known as aggregate demand. To meet demand, multiple stocking tactics are frequently required.

Types Of Demand

Individual Demand

The quantity of a commodity an individual is willing and able to acquire at a particular price, during a specified time period, given his/her money income, his/her taste, and prices of other commodities, like substitutes and complements, is stated  as the individual demand for the item.

Market Demand

The total quantity which all the consumers of the commodity are willing and able to acquire at a given price per time unit, given their money earnings, their tastes, and prices of other goods, is referred to as the market demand for the commodity.

Autonomous Demand

An autonomous demand or direct demand for a product is one that originates on its own out of a natural desire to consume or possess an item. This form of demand is independent of the demand for other items.

Durable Demand

A durable good is one whose whole utility or usefulness is not exhausted in the course of normal use in the short term. Such items can be utilised again over a long period of time without wearing out their welcome.

Non-Durable Demand

The demand for non-durable items depends heavily on their current cost, consumers’ income, and fashion. The structure is also constantly changing.

Short-Term and Long-Term Demand

Short-term concept referring to the demand for commodities over a short period.

The long-term concept refers to the demand which exists over a lengthy period of time.

Cost 

A cost is the value of money that has been used to produce something or supply a service and is thus no longer available for use in production, research, retail, or accounting. In business, a cost might be an acquisition cost, in which case the money spent to acquire it is counted as a cost.

Benefits 

Economic advantages, such as net income, revenues, and so on, are benefits that can be quantified in terms of money created. When discussing a cost-cutting policy, it might also mean money saved. What determines how one calculates economic gains is what he is evaluating. Economic advantages can be quantified and employed in business, policy, and market assessments. Net income, net cash flow, and return on investment are likely to be used by businesses. Consumer and producer surplus measurements are likely to be used by policymakers.

Conclusion

Economics involves the study of how people use limited resources to satisfy unlimited wants. We can study economics on two levels one is the individual level which we call microeconomics and the other one in which we study the economy as a whole is macroeconomics. The basic concepts related to the economy are scarcity- which is the availability of resources in less amount in a country, supply is the flow of goods and services in the market, demand- it refers to as the consumer’s desire to pay for some goods and services, cost- it is the value of a commodity, benefits- these are economic advantages.