Supply and demand

Essay by lazycrak2kA-, June 2004

download word file, 1 pages 3.0

Capitalism is the most efficient economic system due to the free-market concept. The free-market system originated with Adam Smith and his self correcting mechanism the invisible hand. The free-market allows freedom of choice, and allows prices to stay stable and correct themselves due to competition, little government intervention, and supply and demand.

Supply and Demand are the major driving force behind capitalism and the free-market. Supply and Demand allows consumers and producers to change to market condition quickly. Demand is influenced by the price of goods. If the price of a product is high it is less likely for a consumer to purchase that product. The lower the price, the higher demand.

Supply is influenced by how much demand there is for a product. Business wants to make the most profit as possible. If suppliers have their products priced high there will be little demand for them and if prices are too low they will lose money.

That is why supply and demand must be in equilibrium so prices stay low and they meet the demand.

But how about if the demand is too high and there is not enough supply? This is where competition comes in. More and more companies come out to produce the same product for cheaper prices until the market is flooded. Eventually supply will catch up and prices will become lower and stabilize. For example, when digital cameras came out they cost thousands of dollars for cameras that took picture with poor quality. Eventually more and more companies started making cameras. Prices eventually took a drop and now more consumers are buying them than ever. The demand increased due to a drop in prices and companies were competing for the most business. The company with the best camera and the cheapest price survived. This...