Supply and Demand

The supply is about how many goods or services are being inputted into the economy.
For example if a car manufacturing is producing more cars then supply is growing.

Demand is the level that products or services are wanted. For example if more people want to buy cars.


Demand effects supply, and supply effects demand.

If there is more demand for a product then the company will produce more of that product, except if they cannot product more of it, for example if there is a shortage in a particular material.

If there is a high supply of a product then it’s available for more people to buy.

In theory, if the supply is higher than the demand then the product’s price will decrease to encourage customers to buy more. If there is a lower supply than demand then the product price will be increased because the supplier knows that consumers will pay more to ensure they get the product.

Conversely though when the price is increased the demand will decrease as less consumers will be willing to spend so much on the product, and when prices are decreased the demand will increase as more consumers will want to take advantage of the low price.

Therefore the supply and demand is constantly trying to reach an equilibrium balance between the right price and the amount sold and supplied.