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Supply and Demand Theory

The theory of supply and demand is one of the fundamental theories of economics and is the foundation upon which many other more elaborate economic models and theories are based. The theory is a valuable tool that is used by schools of economics in order to explain the workings of a market economy, since supply and demand are crucial elements that directly affect resource allocation.

By definition, supply is the amount of product that a producer is willing and able to sell at a specified price, while demand is the amount of product that a buyer is willing and able to buy at a specified price. Thus, the supply and demand model shows the relationships between a product’s accessibility and the interest shown in it. Unlike with general equilibrium models, however, this model does not define the attributes that are responsible for supply schedules.

Economic theory is based on developing supply and demand models and then factoring in whatever elements might cause disruption to their smooth flow. One limitation of the theory, though, is its simplistic approach in assuming perfectly competitive markets where no single group of buyers or sellers has the power to affect pricing. Whereas effective when accurate, the theory falters when up against actual scenarios that are not so equal and that, therefore, require a more intricate degree of analysis.

Web Resources On Supply and Demand Theory

Wikipedia: Supply and Demand
Economics Interactive Lecture: Supply and Demand

Book Resources On Supply and Demand Theory

The New Law of Demand and Supply: The Revolutionary New Demand Strategy for Faster Growth and Higher Profits by Rick Kash
The Demand and Supply of Public Goods by James M. Buchanan

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