Supply and demand are basic concepts in economics that describe the relationship between the availability of a good or service and buyers' desires for that good or service. These concepts play a role in determining prices in a market economy.
Definition of Supply (Supply)
Supply in economics is the amount of goods or services offered by producers or sellers at various price levels and certain times. Supply shows the relationship between price and quantity supplied in the market. Offers are influenced by several factors, such as production costs, technology, expectations, and the number of competitors.
In general, the relationship between price and supply is directly proportional. If the price of goods or services increases, the quantity of goods or services offered will increase. Conversely, if the price of goods or services falls, then the quantity of goods or services offered will fall.
The following is an example of applying the offer concept in everyday life:
- Price of rice: When the price of rice rises, the quantity of rice supplied will rise. This is because producers will plant more rice to produce more rice.
- Price of cooking oil: When the price of cooking oil rises, the quantity of cooking oil supplied will rise. This is because producers will produce more cooking oil to meet market demand.
- Airline ticket prices: When the price of airline tickets falls, the number of airline tickets offered will decrease. This is because manufacturers will reduce production of plane tickets to reduce losses.
Definition of Demand (Demand)
Demand in economics is the number of goods or services that consumers want or demand and are able to buy at a certain price level and period. Demand shows the relationship between price and quantity demanded in the market. Demand is influenced by several factors, such as income, tastes, prices of other related goods, expectations, and population.
In general, the relationship between price and demand is inversely proportional. This means that if the price of a good or service rises, the quantity of the good or service demanded will fall. Conversely, if the price of goods or services falls, then the quantity of goods or services demanded will increase.
The following is an example of applying the concept of demand in everyday life:
- Price of rice: When the price of rice rises, the quantity of rice demanded will fall. This is because consumers will switch to substitute goods, such as corn or wheat.
- Price of cooking oil: When the price of cooking oil rises, the quantity of cooking oil demanded will fall. This is because consumers will reduce consumption of cooking oil.
- Airline ticket prices: When the price of airline tickets falls, the number of airline tickets demanded will increase. This is because consumers will travel more by plane.
Demand is one of the factors that determines the price of goods or services in the market. When demand increases, the price of goods or services will increase. Conversely, when demand decreases, the price of goods or services will decrease.
Equilibrium
Economic equilibrium is a condition where the supply and demand for goods or services in the market is in a balanced condition, so that there is no excess or shortage. Economic equilibrium has the function of stabilizing prices and managing the allocation of resources efficiently.
The equilibrium price is the price that can meet supply and demand. At the equilibrium price, there is neither excess demand nor excess supply.
Economic equilibrium has several benefits, namely:
- Increasing economic efficiency: Economic equilibrium can increase economic efficiency by ensuring that the goods or services available in the market match consumer needs.
- Maintaining price stability: Economic equilibrium can maintain price stability by preventing excess demand or excess supply.
- Creating justice: Economic equilibrium can create justice by ensuring that all consumers have the same opportunity to get the goods or services they need.
Factors Affecting Supply and Demand
Various factors influence supply and demand, including changes in consumer preferences, production costs, technology, government policies, and external economic conditions.
Price Mechanism
In a market economy, prices are generally determined by the interaction of supply and demand. Prices serve as signals that guide resource allocation. When there is excess demand, prices tend to rise, signaling producers to increase supply. Conversely, when there is excess supply, prices tend to fall, signaling producers to reduce supply.
Changes in Supply and Demand
Changes in factors other than price can cause shifts in supply and demand curves. For example, an increase in consumer income can cause the demand curve to shift to the right, causing an increase in price and quantity.
Understanding supply and demand dynamics is critical to analyzing and predicting market behavior, and it forms the basis for economic decision making by individuals, businesses, and policy makers.
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