Supply vs Demand

Article byWallstreetmojo Team
Reviewed byDheeraj Vaidya, CFA, FRM

Difference Between Supply and Demand

Supply has a direct relationship with the price of a product or service, which means that if the price rises, its supply will also increase. Conversely, If the price falls, then the supply will also decrease. Demand has an indirect relationship with the price of a product or service. If the price drops, demand will rise and vice-versa.

Nowadays, people have become very selective concerning what they use, wear or carry. They are very conscious about what to purchase and what not to buy? A small change in the prices or, say, a certain commodity’s availability drastically affects people. A small disequilibrium in these two (demand and supply) will cause the whole of the economy to suffer.

Demand and supply are perhaps among the most crucial concepts of economics Economics Economics is an area of social science that studies the production, distribution, and consumption of limited resources within a society.read morestudied worldwide. It is also the backbone of a huge market economyMarket EconomyA market economy (ME) refers to a form of economic system where businesses and consumers drive the economy with minimal government intervention. In other words, the laws of demand and supply determine the price and quantity of goods produced in an economy.read more.

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Supply vs Demand Infographics

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Key Differences

The key differences are as follows:

  • Demand is the equilibrium between the price and quantity demanded of a product or commodity at a certain period. On the contrary, the equilibrium between the price of the product or goods and the quantity supplied at a given period is called supply.
  • While the demand curve, as mentioned earlier, slopes downward, the supply curveSupply CurveSupply curve represents the relationship between quantity and price of a product which the supplier is willing to supply at a given point of time. It is an upward sloping curve where the price of the product is represented along the y-axis and quantity on the x-axis.read more has an upward sloping curve. 
  • The buyer’s paying capacity and willingness at a specific price is demand. In contrast, the quantity the producers of those goods offer to their customers or consumers at a particular price is supply.
  • Demand, as stated earlier, has an inverse or the opposite relationship with supply. If demand decreases, then supply increases and vice versa.
  • Demand has an opposite or indirect relationship with the price. If the price of the goods increases, the demand decreases. Similarly, if the price of the goods decreases, then the demand increases. However, on the flip side, the price directly relates to supply. If the price decreases, the supply will also decrease, and if the price increases, supply also increases.
  • Demand represents the consumer or customer’s preferences and taste for a product or the commodity he demands. But, on the other hand, supply represents the firms, which is how much of the goods or items are offered by those producers in that huge market.

Comparative Table

BasisSupplyDemand
DefinitionSupply is the quantity of a commodity made available to the buyers or the consumers by the producers at a specific price.Demand is the buyer’s desire, willingness, and ability to pay for the service or commodityCommodityA commodity refers to a good convertible into another product or service of more value through trade and commerce activities. It serves as an input or raw material for the manufacturing and production units.read more at a particular price.
The LawThe law of supply states that the higher the price of the goods, the higher the quantity will supply. Therefore, producers are ready to supply more at a higher price. The reason is that selling a higher quantity at a higher price will increase their revenue.The law of demand Law Of DemandThe Law of Demand is an economic concept that states that the prices of goods or services and the quantity demanded are inversely related when all other factors remain constant. In other words, when the price of a product rises, its demand falls, and when its price falls, its demand rises in the market.read more describes that if all other factors remain equal (Ceteris Paribus), the higher the price of a product or good, the lesser the people will demand that product or good. Speaking differently, the higher the product’s price, the less quantity demanded.
Graph CurveSince price and quantity move in the same direction, the graph curve for supply will be upward sloping.The curve for demandCurve For DemandDemand Curve is a graphical representation of the relationship between the prices of goods and demand quantity and is usually inversely proportionate. That means higher the price, lower the demand. It determines the law of demand i.e. as the price increases, demand decreases keeping all other things equal.read more would be downward sloping, as the quantity and price have an opposite relationship.
Variations EffectsSupply increases with the demand will lead to a surplus situation. Conversely, when supply decreases, the demand will lead to a shortage.Demand increases with the same supply will lead to a shortage situation. When demand falls, the supply will lead to a surplus situation.
RepresentationOne can view supply from the producer’s perspective. One should consider demand from a consumer or the buyer’s perspective.
Price Impact As the product price increases, the supply of the product will also increase. Thus, a direct relationship.As the product’s price increases, the demand for the product decreases. Thus, indicating an inverse relationship.
Time FactorThe supply relationship is a matter of time as it is key to supply because the suppliers must (but not always) react rapidly to a change in price or demand. So, it is very important to determine whether the price difference caused by the demand will be permanent or temporary.Unlike the supply relationship, the time factor has no impact on the demand relationship.

Final Thoughts

The quantity supplied and demanded equilibrium helps the firm stabilize and survive in the huge market. However, while the disequilibrium does have many severe effects on the firm or the markets, other products and the whole economyEconomyAn economy comprises individuals, commercial entities, and the government involved in the production, distribution, exchange, and consumption of products and services in a society.read more will suffer.

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