Fifty years ago when I was a student of B. Sc. (Ag), the Professor of Economics taught us the law of supply and demand giving examples of agricultural products. Later on, I could see it in real life, how supply and demand operates not only in marketing of goods but also in every walk of life. In India, there is a severe power shortage in some states while demand of power for various purposes – domestic, industrial, agricultural, business etc. is growing but we all know for sure the supply is limited because of constraints in production. If there is no production, supply gets limited and hence one has to limit one’s demand. One of the methods of limiting demand is to save power without wastage. In order to make the people to use less power, the cost of the power can be increased. When the cost escalates, people have an inclination to use less power in both domestic and commercial sectors.
The power shortage has increased the demand for gadgets like UPS and generators and the supply of these gadgets has also increased. Therefore when the supply of power is limited, demands for an alternative are increasing and thus create good marketing for UPS and generators.
The supply and demand determine the prices of products. If desire for goods increases while its availability deceases, their prices rise. On the other hand, if availability of the commodity increases and the desire for it decreases, the price comes down. This fantastic economic theory is used as the fundamental rule for marketing all over the world.
Production costs limit the supply or increase the price of goods – may be electronic goods, vehicles, tooth paste, soap, clothes etc. etc. Supply is also determined by the technology used in the production. New advanced technology is also determining the supply. Sometimes supply is withheld for creating a scarcity in the market to get increased price for the commodities. Above all, the number of suppliers of a particular product counts a lot. Limited numbers control the market price while larger numbers create competition. Such competition helps the consumers to go for better products with cheaper cost.
Similarly one of the major determinants of demand is the income of the consumers. The demands get increased when people have more money in their pockets. Taste and preferences also determine the demand. Sometimes consumers expect that the cost of a particular item may go up in future, so they decide to buy it as early as possible. Also if the number of potential consumers is large, the demand gets increased. I find it so fascinating to think of our day to day life linked with supply and demand theory of Economics. Actually the phrase “supply and demand” was first used by James Denham-Steuart (1767) in his book: An inquiry into the Principles of Political Economy. Then later on, many other economists applied this phrase in their own studies.
Hence, supply and demand, indeed govern our life. One has to plan his or her life according to this simple economic theory. But who cares about it when one has plenty of money! Somehow supply and demand are ignored or managed. In fact, life itself is a management and everyone is good at it.