The Forces of Demand and Supply

In free enterprise system, the distribution of resources and products is determined by supply and demand. Demand is the number of goods and services that consumers are willing to buy at different prices at a specific time. From your own experience, you probably recognize that consumers are usually willing to buy more of an item as its price falls because they want to save money.

Supply is the number of products that businesses are willing to sell at different prices at a specific time. In general, because the potential for profits is higher, businesses are willing to supply more of a good or service at higher prices.

The price at which the number of products that businesses are willing to supply equals the amount of products that consumers are willing to buy at a specific point in time is the equilibrium price.

Changing the price alters the supply situation and a new equilibrium price results. This is an ongoing process, with supply and demand constantly changing in response to change in economic conditions, availability of resources, and degree of competition.

Critics of supply and demand say the system does not distribute resources equally. The forces of supply and demand prevent sellers who have to sell at higher prices and buyers who cannot afford to buy goods at the equilibrium price from participating in the market. According to critics, the wealthy can afford to buy more than they need, but the poor are unable to buy enough of what they need to survive.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

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