It’s interesting to note the names of the Supply and Demand curves. Both curves have an aspect of desire, of a need to achieve a goal. On the Demand side, there is a desire to obtain goods and services. On the Supply side, there is a desire to obtain profit. Both have a motivation to gain; yet we name the Demand curve such as it is, drawing up an image of a bellowing, fist shaking consumer, and we deem those who provide their desired goods and services to be Suppliers. Let’s flip the image around. Can the Suppliers not be caricatured as a pack of bellowing, fist shaking profiteers, and the consumers as the subservient providers of the profit? Certainly. Both have a subtly different means to the same end: gain.
The etymology of Supply and Demand suggest a tidbit of human nature. Both sides have a desire to gain, and in the long run the people running both ends of the market will want goods and services. Profits can be used by suppliers to gain their own goods and services, during which transactions they would switch their role to a consumer; however, as the chief instigator of the economic problem, goods and services take the center stage for each individual transaction. Thus the receivers of goods and services are the Demanders, and those who quench with goods and services are the Suppliers.
So we start with effective Demand, a measure of a how much a group or individual is willing and able to make a purchase. Essentially, Demand is affected by Price, income, personal tastes and preferences, price of related goods, and expectations for a change in supply. Supply, though effected by Demand, fundamentally exists to serve Demand as a means to receive profit. Supply is affect by things like Price, cost of production, available technology, and expectations for a change in demand. These determinants of Supply and Demand are largely external, except for Price. Price is a special determinant shared by the two, born of the marriage between them.
The Supply and Demand model illustrates how price is finally determined. By overlaying the Supply and Demand curves, the two cross at a point mutually beneficial for both parties. That point marks the equilibrium market price, where the output of goods, services and profits are maximized in the most efficient manner. If this value was always known, there might theoretically be no waste of resources, ceteris paribus.
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October 1st, 2007 at 1:04 am
Not quite as inspired as it should have been, being such a critical aspect of economics. I might add more later just to flair it up some.