Supply-Demand Analysis in Business Management

Generated by AI

What Is Supply and Demand?

At its core, supply and demand is a foundational microeconomic model that explains how prices and quantities of goods are determined in a market. It describes the relationship between how much producers are willing to supply and how much consumers are willing to buy at different price levels. The point where the two curves intersect is the equilibrium, where quantity supplied equals quantity demanded.

• Law of Demand: Ceteris paribus (all else equal), as price increases, quantity demanded decreases — and vice versa. The demand curve slopes downward.
• Law of Supply: As price rises, quantity supplied also increases, producing an upward-sloping supply curve.

Points to Keep in Mind

1. We’re looking through a microeconomic lens here — the choices of individual firms and consumers in specific markets. This is distinct from macroeconomics, which zooms out to study aggregate demand and supply across entire economies (GDP, inflation, unemployment). Businesses make pricing and output decisions using micro-level curves, not macro ones, because they need to understand their own customers and costs, not the whole economy in one gulp.