Skip to main content

ECON 2a SUPPLY AND DEMAND

I reserve the right to be wrong.



Supply and demand is the process by which people figure out the price, in money, for an exchange to take place. So supply and demand is the mechanism by which we discover what prices we can charge others if we're selling, or what we should fork out if we're buying. So supply and demand is people in a free market undertake 'price discovery'.



SUPPLY

This is the quantity of a product that is produced.
Oh myyy! What an uncurvy curve! Oh well, any line on a graph is apparently good enough to call a curve. Whatevs. 'But Matt!! Why is the price going up in line with quantity???' Well, this represents the increasing cost to get the products to market and so the desire to charge more to offset that cost.



DEMAND

This is the aggregate of all potential desire for a product. That is to say, this curve represents the potential market for whatever is being sold.
'But Matt, why is this one the opposive of the supply curve.' That is because the more plentiful a product is, the less valuable it becomes to individual customers, decreasing the price they are willing to pay for it.




HAPPY MIDDLE?

Finally, those two phenomena, supply and demand, must meet wherever buyers and sellers settle on a price; this we call the Equilibrium Price, where Market Equilibrium is to be found.

 To supply more than this would make each further unit produced less valuable and hurt demand, causing inventory to go unsold, whereas under-producing under exploits the opportunity, as customers' demand exceeds supply, leading competitors to enter the market and displace the current participants. This is the essence of market discipline, sticking to the laws of supply and demand because not doing so sentences the enterprise to potential financial losses and even destruction altogether.

All Production and Exchange (Econ 1a and 1b respectively) respond to supply and demand, causing production to ramp up in response to increased demand, and to decrease in response to falling demand.

Resources will be allocated according to where demand is seen to be either high or increasing, and diverted away from where demand is seen to be low or falling.

Graphs above are from  http://www.investopedia.com/university/economics/economics3.asp



On the next Ecomony Blogtime; Matt spends an hour talking about the black market in woollen socks!

Comments

Post a Comment

Popular posts from this blog

Private Ownership and the Emergence of Field-based Agriculture

Quick update: There is a nicer, fancier article on this very subject on another blog. If for some reason you read my article below, treat yourself and partake of properal's piece too . ~~~ There is a paper by Samuel Bowles and Jung-Kyoo Choi called 'Coevolution of farming and private property during the early Holocene' and it is wonderful. It leaves a few stones unturned and its thesis needs to be empirically verified or falsified but it really begins to clarify the intimate relationship between the form of agriculture that we refer to as farming on the one hand and private ownership on the other. Their thesis is that technology was not the driver that led to long-term (inter-generational) farming, but also that farming did not follow some moment where the folks in a society all said "hey, let's all have private property now!" Rather, what they posit is that farming and private property actually coalesced, ad-hoc and over a multi-generational time-fram...
Post a Comment
Read more

Doomer Eternal?

Youtuber Sarah Z talks about the Doomers, those who despair of the world. I am not trying to criticize Sarah Z's take since it is remarkably similar to mine, but I will dump my thoughts below anyway. [ 1 ] ~ ~ ~ The media has broadcast nothing but wall-to-wall doom-and-gloom for a-hundred years and then some. If things feel more hopeless now it's because so much of that media is social media generated by us, so that we are sharing the doom-and-gloom meme with each other AS WELL AS getting it from the mainstream media. Human life is in less peril than ever before (barring the possibility of WW3 between China & Russia v. NATO & SEATO) as economic development makes comfortable civilized living more and more accessible to more and more people every year, and the carbon intensity of every unit of GDP is continually declining. CO2 emissions could plausibly lead to specific calamities with identifiable bodycounts in the near future, and preventing CO2 emissions by the one plau...
Post a Comment
Read more

Iain McKay, Bryan Caplan & the Case of the "Anarchist" Anarchist

In the past I have written blog posts disputing claims contained in the online document called An Anarchist FAQ principally written by Iain McKay. I spent those posts trying to contend with Iain's claims re  the ancap question  and  the mode of production called capitalism . McKay has a bee in his bonnet re anarcho-capitalists' insistence on referring to themselves as anarchists, that much is obvious. Every reference to ancapism runs something along the lines of "an"cap or "anarcho"-capitalism. I find this very amusing because 'anarchist' or 'anarchism' are words (articulate mouth-sounds) first and specific concepts second.  Ditto 'socialist' and 'socialism' friends. Speaking of socialism... In  the comment section of one of his videos  the Youtuber called StatelessLiberty responded to a criticism by linking to Caplan's work  on the Anarchist adventure in Spain in the 1930's . The critic shot back with a  critic...
1 comment
Read more