Supply and demand are two foundational concepts in economics. According to Investopedia, supply “describes the total amount of a specific good or service that is available to consumers…. [All] else being equal, the supply provided by producers will rise if the price rises because all firms look to maximize profits.” Demand, as Investopedia explains, “describes a consumer’s desire and willingness to pay a price for a specific good or service. Holding all other factors constant, the price of a good or service increases as its demand increases and vice versa.” Often when people talk about supply and demand, they are talking about the relationship between the two concepts, referred to as the Law of Supply and Demand. We’ll talk about this concept more next week.
So what do these two concepts look like in our everyday life? When the Xbox One came out last December, more than 2 million consoles were sold within 18 days. Yusuf Mehdi, the corporate vice president of strategy and marketing, stated that demand was exceeding supply. This indicates that consumers were very willing to buy the product (high demand), but that Microsoft did not have enough consoles to sell to everyone who wanted one (low supply). When we discuss market equilibrium next week, we’ll talk about how having too much or not enough demand can affect the price and supply of products available to purchase.
For more information on supply and demand, check out these resources available through the St. Louis Federal Reserve’s Economic Lowdown website:
Also, consider reading the book Demand: Creating What People Love Before They Know They Want It, by Adrian Slywotzky, available in Andersen Library’s Main Collection (call number: HB801 .S56 2011).