These decisions necessarily entail that some potentially productive opportunities are sacrificed in order to make what is estimated as the most productive choice.
Supply and demand refer to specific products and services, the ability to provide these, and the level at which they are desired by the target market. Buyers desire a product or services, and therefore demand a certain quantity of these at a certain price. The relationship between the price and quantity of desirability is the demand relationship. Supply is the actual quantity of the product or service that the market can provide. The concept of supply relationship is the correlation between supply and the price received by the supplier, who is willing to supply a certain amount of products at the price received.
The dynamic in the relationship between demand and supply has a direct influence on the efficient allocation of resources within an economy, as well as the values according to which such allocations take place. The laws of supply and demand are projections of what will occur when all other factors remain equal. This also demonstrates the particular dynamic between the two concepts.
In terms of the law of demand, there is an indirect relationship between price and demand: the higher the price, the fewer people will demand the good or service, while a decrease in price will mean an increase in demand. In the law of supply, there is a direct relationship between price and quantity supplied: the higher the price, the more goods are supplied, as this means more revenue.
The allocation of resources is at its most efficient when there is the...
In this theoretical relationship, the goods supplied is exactly the same of the amount of goods demanded, which means that both suppliers and consumers are satisfied with the conditions of the economy. Such equilibrium is however not possible in reality, and the daily fluctuations in price and quantity indicate the constantly shifting forces of demand and supply in the market place.
Disequilibrium is much more likely, with either excess supply or excess demand indicating a need for a change in the relationship. Excess supply means that the price is too high above the equilibrium, and should be lowered, while excess demand means that an insufficient amount of goods are produced, which should be raised to reach the equilibrium amount.
The economic ideal in the demand and supply relationship is equilibrium. In order to continually optimize the allocation of resources and improve the economy, economic decisions need to be made towards the equilibrium. A country's values and economic goals should reflect this. Many factors can therefore contribute to the status of the economy. Being well-informed regarding efficient economic principles and the allocation of resources is a valuable first step.
Bibliography
NetMBA.com. (2002-2007). Production Possibility Frontier. http://www.netmba.com/econ/micro/production/possibility/
The Times 100. (1995-2008). Demand and Supply. http://www.thetimes100.co.uk/theory/theory--demand-supply -- 239.php
Schenk, Robert. Scarcity and Choice. http://www.netmba.com/econ/micro/production/possibility
