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

I AM AN AUSTRIAN

Is it so wrong? Really? Just humour me, dudes and dudettes. I am an Austrian. I am a Libertarian. I am an Austro-Libertarian. I'm evidently also a hypocrite, as I've used most of these words without capitals in past posts. Oops. I've made Austrian economics my home because it accords better with certain concerns of mine; why have a subjective theory of value and then lump desires and capacities into aggregates? Why declare that economic facts can be gleaned from the movements of particular markets at particular times in the past? Rothbard sums up the problem with both phenomena in a way that no mainstream economist ever would, since to do so would be to admit that there are entire fields of modern economics that are, at best, pointless, and at worst, harmful. NOT MAINSTREAM? Why is Austrian economics not mainstream? It rejects the efficacy of aggregates and mathematical formulae to arrive at economic truths. According to the Austrian worldview,...
Post a Comment
Read more

1318 - The Evil Capitalists Own Your Mom!

The New Scientist ran a piece  on the economic relationships between the 43,060 transnational corporations in the world as of 2007. It turns out that 147 of 'em are thick as thieves, which each of those 147 entirely owned by one or more of the others within that clique. Naturally some anti-capitalists have decided that this proliferation of tight interconnections constitutes the proof that not buying what someone's selling will fail to put that seller out of business. Takes all sorts to make a world, brah. Is concentration scary in itself? No; John Driffill of the University of London, a macroeconomics expert, says the value of the analysis is not just to see if a small number of people controls the global economy, but rather its insights into economic stability. Concentration of power is not good or bad in itself, says the Zurich team, but the core’s tight interconnections could be. As the world learned in 2008, such networks are unstable . “If one [compan...
Post a Comment
Read more