Harvesting Good
Supply and Demand Curve (How it works)
A
n economy is made up of interactions of resources, satisfying needs and wants. And in this world, trade and business are at the heart of an economy. Microeconomics looks at the interactions between individuals and respective supply and demand. In contrast, macroeconomics takes a broader overall approach.
When a product or a good is traded, its supply is mostly influenced by demand; it can be natural or manufactured from natural resources. Supply and demand can also be taken as an exchange of resources between buyers and sellers. When supply equals demand, a state of equilibrium is achieved, and it can be in terms of price or quantity; or in tandem.
Factors affecting economic risk, supply and demand
Economic risk can influenced be various factors, which also determine the price of a good, product, or supply. Foremost is demand; in addition to quality, effectiveness, condition, substitute, competition, production cost (variable & fixed), and resources. Many factors affect the supply and demand of goods or commodities.
Excessive taxation leads to negative sort of a command economy, which mostly does not bode well for the system and people; hence, there should be a role of good free markets and honest trade based on the principles of justice and equity, for an economy or society to flourish.
Demand is often influenced by need, desire, consumer expectations, sentiments, competition, money circulation, and capacity. Wealth (money) should generally be in circulation, resulting in increased economic activity (supply and demand) and creating a prosperous society. In contrast, hoarding wealth does the contrary, bearing negative consequences for the society and economy and creating massive wealth inequality and gaps.
Price elasticity also influences supply and demand and is often a factor in price determination.
When Demand exceeds supply, a shortage erupts in the economy; in regards to the respective commodity, product or a good. This often results in price increase. Conversely when supply exceeds demand, a surplus is accumulated in the economy; which often results in falling prices. Some commodity prices are inelastic, such as crude oil prices in the current age.
Below chart, gives a good visual representation of this. As can be seen, when supply is ahead of demand, there is surplus and when demand is ahead of supply, there is a shortage.
Financial Economy
Macro economy refers to the overall major and categorized aspect of the economy, for instance it accounts for governments, industries, trade, import and export, monetary and fiscal policies. Whereas micro economy refers to transactions on individual and micro level.
Supply and demand of money or currencies in an economy influences their respective values virtually, and inflation and deflation in an economy; which affects both micro and macro economic factors. Fiat currencies are particularly vulnerable. Actually its the increased supply of currencies that causes most of the inflation in the economy, as increased supply causes the currencies to loose value (reduced purchasing power) and hence, raising the values of goods. In essence, most of the time its not the goods and services that have increased in value or price but rather the increased supply of currencies or money in the economy.
To properly and efficiently meet demand, supply side needs to be carefully managed; along with market research, which is often referred to as supply chain management. And getting a good solution to a problem, making way for trade.
Conclusion
It is also essential that there is a balance between producers and consumers. Supply and demand is a basic component and characteristics of this world. The rule extends from quantum level to thereof. Electricity is only generated when an electron (supply) fills an electron hole or depression (demand). Even the elemental bonds are formed on this principle of supply and demand and satisfying needs and the world as we know it. Everything is relative, and exists in a delicate balance. Perfection often lies in the balance.
Human societies work on similar basis, be it economic or spiritual or simply survival. Morality and good virtues needs to upheld at every stage and as desired by the Creator; after all character becomes destiny. Morality and justice are a paramount need, that appears to be in short supply; but in great demand nonetheless.
