Economics is a social science that deals with consumption, transfer of wealth, and consumption of goods and services. The subject helps to study how businesses, individuals, and nations allocate resources.
Supply and demand are the basic economic concepts that help to understand the market mechanism. These models help to determine the price and quantity of products in a given place and time.
So, what is the main difference between demand and supply? Demand is the buyer’s willingness and ability to pay for a particular product at a specific time or place, and supply is the quantity of a commodity made available by producers to consumers at a certain price.
Both these economic models adhere to their respective laws. These laws depend on particular concepts and their relationship to the price. Demand and supply provide an in-depth understanding of the market economy.
This article provides a detailed explanation of the differences between supply and demand. You’ll also get to learn the difference between the law of demand and the law of supply. Take the time to read through it to know supply and demand examples.
You May Also Like: Difference between Micro and Macro Economics
Comparison Table (Demand Vs Supply)
|Refers to the ability and willingness of buyers to pay for a particular product at a given price or place.
|It is the number of commodities made available by sellers to consumers at a specific price.
|The slope of the Curve
|When the demand increases, supply tends to decrease and vice versa.
|When the supply increases, the demand decreases, and vice versa.
|Relationship with Price
|A decrease in prices causes an increase in demand and vice versa.
|An increase in price causes decreases in demand and vice versa.
|Demand law states that the quantity of demand increases with a fall in price and decreases with rising in price when all things are held constant.
|Supply law states that the quantity of supply increases with an increase in price and falls with a decrease in price when all things are held constant.
|The surplus in the market occurs when demand is more than supply.
|The deficit in the market occurs when the supply is more than demand.
|The demand relationship is not affected by the time factor.
|Supply depends on the time since it helps sellers react to changes in price.
|Tastes and preferences of consumers in the market.
|Stock availability of the seller in the market.
|Determinants other than price
Price of related products
Taxes and subsidies
Prices of resources and inputs
What Is Demand?
It is the customers’ willingness and ability to pay for a particular product at a given price and time. Keep in mind that the demand of customers depends on their needs and wants.
But desire, willingness, and means of purchase are mandatory. These factors help to describe the demand relationship with price.
For instance, a homeless person has a desire for food and clothes. But he or she does not have the money to acquire them. Thus, there is no effective demand.
The law of demand states that when the product price increases, customers’ demand will decrease, and when the price fall, the demand will increase.
The relationship between demand and price results in a downward sloping curve. It is a clear indicator of an inverse relationship between price and quantity of demand.
What Is Supply?
It refers to the number of commodities sellers are willing to avail to the market at a given price and time. Willingness and the ability to supply play a vital role in such a circumstance.
Keep in mind that supply represents a firm. Therefore, anything offered to the market for sale at a given price and time is supplied.
The law of supply states that an increase in price causes an increase in supply and a fall in price results in a decrease in supply.
Firms will make higher profit margins when the price is high. The relationship between price and supply is directly proportional.
The graph of supply and price is always sloping upwards. It clearly defines the close relationship between supply and price.
Main Difference between Demand and Supply
- The demand curve has a downward sloping and the supply curve has an upward slope.
- Demand represents the willingness of buyers and supply represents the willingness of sellers.
- Demand is inversely related to price and supply is directly related to price.
- Demand expresses the tastes and preferences of consumers and supply expresses stock availability in the market by sellers.
- A surplus in the market occurs when demand is more than supply and deficits in the market happen when supply is more than demand.
- Quantity of demand falls with an increase in price and vice versa while the quantity of supply fall with a decrease in price and vice versa.
Similarities between Demand and Supply
- Both demand and supply are economic models.
- Both determine the market economy.
- Both affect commodities, consumers, and producers.
You May Also Like: Difference between Accounting and Auditing
The difference between demand and supply depends on the willingness and ability of buyers and sellers. Demand refers to the desire, willingness, and ability to pay for a product at a given price and time.
Supply refers to the willingness and ability of sellers to bring products to the market at a given price and time. Supply is a representation of firms looking to earn profit by charging higher prices.
Demand represents consumers. Research shows that consumers are willing to pay for products sold at lower prices. If the price of a particular product increases, the demand will fall since consumers will resort to alternative products.
Supply has a direct relation with price and demand has an inverse. These two relationships help to describe the law of demand and the law of supply. But the laws become valid when all other factors are held constant.
At equilibrium, most firms become stable and survive in the market for an extended period. Disequilibrium usually brings instability in the market, affects the commodities and market economy.
Many countries strive to ensure quantities demanded and supplied are at equilibrium. The basic laws of supply and demand have to be upheld to avoid surplus and deficits in the market.
More Sources and Resources
- Hellen Li. Supply and Demand Analysis. New York University.
- Amal Kumar. Demand and Supply. College Board Research.
- Gregory Lawis. Supply and Demand Model. Harvard University Library.