Supply And Demand

Essay by PaperNerd ContributorUniversity, Master's May 2001

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Supply and demand are very powerful factors in the economy. These two factors have perhaps the greatest effect on the price of a given commodity. A commodity is a material or article as opposed to a service. Demand is how much a person or group of people wants a particular commodity. Supply is the amount of the particular commodity. While these two factors are not directly related, they are related in a way. They are related in the sense that they have a huge impact on the price of a commodity. If the demand of a commodity is higher, then the price will be high, but there is still that other factor to account for. You must also think about the supply of the commodity. If the demand is high but the supply is also high, then the price will usually be moderate but if the demand is high, but the supply is low, then the price will usually be ridiculously high.

If the demand is low and the supply is high, then the price will usually be incredibly low, while if the demand is low and the supply is low, the price will usually be moderate. Three great examples of supply and demand are Furby, Tickle Me Elmo, and Playstation II. Each one of these products had an incredibly high demand but the supply was low, therefore whoever was selling these commodities could get a lot of money for one.

Supply and demand is often used to determine what price is best at which to sell a particular commodity. One of the tools used to determine this is called a demand curve. A demand curve is plotted onto a graph using the supply of a commodity on one axis and the demand of the commodity on another...