What is Demand and Supply?

The world is experiencing a significant demand and supply problem. There is a lot of talk going on about the economy and the factors that are causing it. However, the one thing most people seem to forget is economics. The basic premise of economics is that there are two types of economies, demand and supply. Economics uses supply and demand to determine how something affects the prices in the market.

So, let’s look at an example using food. If more people demand more food then the supply will decrease leading to increased prices. On the other hand, if less people demand less food then the supply will increase leading to lower prices. Both situations result in increased prices and a reduction in quality. Now lets use this basic economics example to examine Hong Kong’s economic situation. Has the current government done anything to remedy the issue?

The economic growth of Hong Kong has created less competition for businesses to employ people. The less competition businesses have the ability to charge a lower price for their products and services to customers. These customers in turn spend more money in the economy resulting in more economic growth.

So what does this have to do with price? Simple, as less people demand the product the price of it decreases. For example, last year Nike released a new running shoe that costs $110. This shoe is very popular amongst celebrities and sports stars. However, less people want to buy this particular item so it sells at a discount.

Since less people are buying this item Nike has lowered the price to make more profit. However, since less people are buying this item Nike has no choice but to reduce the quality to make more profit. Now you see why reducing the quality doesn’t have to hurt the economy? I hope you understand my point.

As you can see demand and supply are directly related to economic growth. When there is less of something desired then the economy suffers because there is less income available to produce more of the items needed. If we continue to do this then the US will suffer severe economic problems because no one will be manufacturing any products to sell and the prices will not be allowing the economic growth to occur.

In order to prevent this from happening America needs to have more exports. The best way to accomplish this is to have lower over-supply and to increase the demand. Currently the United States is importing goods in order to satisfy the demand. We do not want to reverse the flow of the demand and instead we need to continue to pump the money back into the economy to allow the American consumer to have more income and buy more goods. The good news is if you have excess inventory you can purchase more of the goods that you are selling and then turn around and resell the products for a nice profit.

The other bad news is that the United States is importing less of the things they need to produce more of their goods. In fact, we are also depleting our own supply of raw materials. That is right, we are importing less of everything and it is resulting in less demand for those items. As you can see demand and supply are directly connected to economic growth and when they are weak a person’s income becomes weaker which directly creates a smaller economy.