Supply and Demand Curves

The scarce resources found in almost all economies are bought and sold for a price. Theoretically, these prices are controlled by a price mechanism of supply and demand.

Demand is the behavior of buyers towards a particular resource or commodity. It determines the terms of price change and quantity demanded. Given that the price of a certain product increases, the demand for that product decreases. This means that fewer people could afford such product, which causes a drop in demand. In contrast, when the price dips, the demand spikes up because more people can afford it, hence the trend is a downward slope (see Demand Curve). We can therefore see how buyers are willing to buy at various prices.

The supply component is established through the behavior of suppliers and manufacturers. In this case, price and the quantity of supply dictate the trend in the curve. There is a direct proportional relationship between price and supply. At successively higher prices, manufacturers are willing to supply greater quantities because of potentially gaining higher profits (see Supply Curve). But at low prices, the manufacturers don’t bother in spending more for the supply of their product.

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