Analyzing Supply-Demand Relationship in Microeconomics

 



Microeconomics is one field of economics, which deals with the study of consumer behavior. The consumer can belong to a household, an industry or a company. Hence, microeconomics relates to the study of allocation of funds to different sections of users, which include domestic households, firms and industries. Their decision making pattern is thoroughly studied to make assessment and observation for the future forecast of market condition, particularly when resources are limited. However, since the buying and selling is common to all participants of economy, therefore microeconomics plays an important role in determining the supply and demand of goods. As this factor is responsible for price fixation of goods and services, the change in supply vs. demand position can lead to change in price. As resources become limited, microeconomics tries to analyze the relationship between market conditions, product prices, as well as the market mechanism which establishes this relationship. Such mechanism has a great role to play in the allocation of resources, in such scenario.

Therefore, microeconomics has a significant role in determining the conditions required for a perfect competition. It also studies the conditions which may have led to market failure, when results are not produced efficiently. However, microeconomics can only establish the theoretical conditions, while actual market behavior may be different, sometimes. Accordingly, studies in this field of economy would include decision making ability under uncertain market condition. It also includes the study of market, which may not follow any pattern.  

think out of box
think out of box
  • Principles of microeconomics

There are few major principals of microeconomics, which this paper will deal in phases. We are currently covering supply and demand relationship, while factors like opportunity cost and market behavior shall follow in future entries. As there is a great relationship between a household and economy; Greek ancestors have correctly named the manager of a household as ‘economy’. Looking at the wider scenario, the household is an economic entity within a larger society. The society must ensure the allocation of funds and jobs to different members, while managing the available limited resources. Therefore the decisions need to be taken, keeping in view certain fundamentals, which are considered as the principles of microeconomics, which help people in making their decisions.

fundamentals of microeconomics
supply-demand curves

 

  • Supply and demand

In economic terms, demand means willingness, need and ability to purchase certain goods or services. However, desire to purchase may meet the requirement of willingness, but same only cannot generate demand. The purchaser must be able to pay for the specific good or service. The payment method can vary, as sellers except cash, credit cards, deferred payment or lease payments, nowadays. The capacity to purchase the goods determines the ability for generating the demand. Readiness to purchase the goods, right now, comes after the above two requirements of demand have been met. Once the immediate purchase willingness is confirmed, the demand gets generated.

Catch more  on this topic in our future blogs.