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The economics of demand and supply

Economics assesses a myriad of factors and dynamics that exist within economies across the globe. Demand and supply are phenomena that explain how the choices of consumers and producers can impact each other and the overall economy at large. Their influence leads to several other resulting actions and consequences occurring. Thus, we will be examining them today.


Now, what is demand? Why is it important, and just how much influence does it have? Essentially, demand refers to the goods and services requested by and can be afforded by consumers in satisfying their wants and needs. Practically speaking, we all contribute to demand when we consume goods and services. See, though this varies depending on the economic system an individual lives in – free market, mixed or controlled – the everyday trading practices, trends, and spending habits of consumers all contribute to demand. This impacts supply as they have a directly proportional relationship. Supply speaks to the level of provision of goods and services within an economy to cater to the demand from consumers. Therefore, the more a good or service is demanded, the more it is supplied to meet or satisfy that demand. Conversely, the less a good or service is demanded, the lower the supply for it.


In establishing this, we see why companies and businesses dedicate so many resources and so much time to making consumers want and desire their product(s) or service(s). By doing this, they can then supply more and generate greater income and profit. This also factors into an economic indicator used by every country across the globe – Gross Domestic Product (GDP). This measures the total output produced within the borders of a country over a particular period. In a suitable economy that has high consumer spending due to affordable goods and services, the supply and the output of goods and services provided for their consumption would increase. This would be reflected in the country’s GDP.


This, as the value of all that output that is produced locally, is totaled and that represents the GDP for that period which is used to assess the performance of a country’s economy. Economics encompasses concepts, theories, and measures that are all intertwined with each other. Therefore, this is only one of several others. Demand and supply, though quite simple, do have a profound influence within economics and business, highlighting how the actions of consumers and producers are essential economic agents.