SUPPLY AND DEMAND

       The two sides of each market transaction are called supply and demand.

We are supplying resources to the market when we look for a job – that is,

when we offer our labour in exchange for income. But we are demanding goods

when we shop in a supermarket – that is, when we are prepared to offer money

in exchange for something to eat. Business firms may supply goods and

services in product markets at the same time that they are demanding factors

of production in factor market. A demand exists only if someone is willing and

able to pay for the good – that is, exchange money for a good or service in the

marketplace. The market demand is determined by the number of potential

buyers and their respective tastes, incomes, other goods, and expectations. A

consumer’s willingness and ability to buy a product at various prices depend on

a variety of forces. The determinants of demand include tastes (desire for this

and other goods), income (of the consumer), other goods (their ability and

price), expectations (for income, prices, tastes). The law of demand says that

the quantity of a good demanded in a given time period increases as its price

falls. The market supply of a good reflects the collective behaviour of all firms

that are willing and able to sell that good at various prices. The determinants

of market supply include technology, factor costs, other goods, taxes, and

expectations, number of sellers.