Supply and Demand

Supply and Demand
Supply and demand is the association between the quantity of a product that producers wish to sell at various prices and quantity that customers wish to buy. In economic theory, it is the main model of price determination. In a retail market, the price of the product is determined by the relationship of supply and demand. The determined price is known as the equilibrium price. It represents an agreement between the sellers and the buyers of the product. In equilibrium, the amount of a product supplied by the sellers equals the amount demanded by customer. Demand refers to the amount of a product customers want.Supply refers to how much the market can offer. The law of supply and demand ties into most economic principles. Supply and demand pull against each other until equilibrium is reached. Each specific product or service will have its own supply and demand patterns based on price, use, and personal preference.

Brazil's sugar in 2000 and financial assets of baby boomers in the 1990's can demonstrate two real world examples of supply and demand. Brazil is the world's largest sugar producer. In 2000, Brazil was hit by inclement weather which reduced sugar production by 15%. Inclement weather in the form of a crop-damaging freeze, too little precipitation or even too much precipitation affects some market every year. The bad weather in Brazil in 2000 shifted the supply curve for Brazilian sugar. Quantity demanded exceeded quantity supplied at the original price; so, the market forced the price to rise until quantity demanded equaled the amount supplied. In the mid -1990's, baby boomers started to put away greater amounts of money for retirement. This savings was directed toward the purchase of financial assets thus driving up the price of stocks. The baby boom was a post war population increase. This resulted in an increase for a multitude of products as baby boomers graduated and bought homes. The boomers then began to demand more health care and financial assets. Thus, demographic changes demanded more financial assets resulting in an increase in stock market prices and an increase in the amount of mutual funds and stocks supplied. This change also resulted in a Hugh rise in the housing prices in the 1980's when the baby boomers began to buy homes. These examples demonstrate how supply and demand pull against each other to find equilibrium.