In the present times, individuals exhibit a high degree of selectivity regarding what they consume, utilize, wear or carry. They have become quite conscious regarding the things they want to buy. There is a significant impact of changes in price and availability of goods or product on individuals. In this regard, demand and supply are the two forces that are considered to drive the market and the economy.
Demand refers to the quantity of a product or service required by an individual, along with their willingness and ability to pay for it. In contrast, supply refers to the overall amount of goods that are available in the market for sale. These two concepts are inversely related to each other because when demand increases, there is a decrease in supply and when supply increases, there is a decrease in demand. It is important to have equilibrium between demand and supply for the market to function properly.
In this article, the two terms will be examined in detail and the differences between the two will be presented.
Definitions and meanings
Demand
Demand refers to the amount of goods or services that the buyers need. It is essentially a reflection of the requirements and preferences of customers for a given product, for which they are willing to pay a given price. The link between the quantity desired by the customer and its price is referred to as the demand relationship.
Demand is negatively linked to price. The demand for a product decreases when its price increases and the demand increases when its price decreases. This is known as the law of demand and is only applicable when no other factors are taken into account apart from quantity and price. This law is presented in the form of a demand curve, which has a downward slope.
Supply
Supply refers to the amount of goods and services that the market can offer to its customers at a given price. The supply of a product or service essentially signifies how the quantity supplied is in equilibrium with the price of a product.
According to the law of supply, supply and price are positively related to each other, i.e. there is an increase in supply of a product when its price increases, and it decreases when the price decreases. This can be represented in the form of a supply curve, which has an upward slope.
Difference between demand and supply
The difference between demand and supply is given below:
1. Meaning
Demand refers to the desire or readiness of the customer to purchase a product or service, along with their ability to pay a specified amount for it. Supply refers to the amount of goods that are available in the market at a specified price.
2. Derived from
Demand and supply are derived from different factors. Demand is determined by the availability of a product, the customer’s income level, preferences and tastes as well as the price and availability of other similar products in the market. On the other hand, the supply of a product is determined by the availability of suppliers in the market, the cost of production, technology changes,type of product and availability of resources required for producing the product.
3. Direction of curve
The slope of the demand curve is in a downward direction, whereas the slope of the supply curveis in an upward direction.
4. Relationship with price
Demand has an adverse relationship with price, i.e. an increase in prices causes a decrease in demand, and vice versa. The relationship of supply with price, is however, direct in nature, as price increases bring about increase in supply, and vice versa.
5. Correlation between demand and supply
Demand and supply have a negative relationship with each other. When the demand of a product increases, its supply decreases, and as supply increases, the product demand falls.
6. Represents
The demand of a product is representative of the customer, i.e. it represents the demand of the customer, and their preferences regarding the product. In contrast, supply is indicative of the firm or the supplier and informs us about the quantity of goods that can be supplied by the supplier for a certain period.
7. Variations
When the supply remains the same and demand increases, shortages of product are created in the market. On the other hand, when the supply stays same but demand decreases, a surplus will be created in the market. On the other hand, when demand stays constant, a surplus will be generated when supply increases and a shortfall will be created when supply of product in the market decreases.
Demand vs supply – tabular comparison
A comparison of demand and supply in tabular form is given below:
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| Meaning | ||||
| The customer’s desire to purchase a product at a given price | The quantity of a product that is available in the market | |||
| Derived from | ||||
| – Product availability – Income, likes, dislikes and tastes of customers – Substitute products |
– Number of suppliers – Production cost – Kind of product – Technology change – Availability of resources for production |
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| Direction of curve | ||||
| Downward sloping | Upward sloping | |||
| Relationship with price | ||||
| Inverse relationship | Direct relationship | |||
| Relationship between demand and supply | ||||
| Inverse; demand increases when supply decreases, and vice versa | Inverse; supply increases when demand decreases and vice versa | |||
| Represents | ||||
| The customer | The firm | |||
| Variations | ||||
| When demand rises and supply remains constant, shortfalls in the market are experienced. When demand falls and supply stays constant, a surplus is experienced. | When supply rises and demand remains consistent, there is a surplus in the market. When supply declines and demand remains consistent, a shortfall in the market is experienced. | |||
Conclusion – demand vs supply
A large number of products are available in different product categories, and when prices increase or decrease suddenly, the demand and supply of these products or services may increase or decrease. It is important to ensure that an equilibrium is established between the demand and supply of goods, while taking into account the prices at which the products are sold. When this equilibrium is present in the market, the firm will be able to remain stable in the market for an extended period of time. On the other hand, the firm, markets and even the entire economy are going to suffer from the existence of disequilibrium in the market.
