Supply, Demand, And Price
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Supply, Demand, and Price
Supply and Demand are the two most used words in economics. When there is a lower supply of something than meets the consumers wants, only those willing to pay a higher price will be able to satisfy their demand. Likewise, when there is a higher supply of something than is needed to satisfy the wants of consumers; theoretically, consumers will be able to buy their article at a lesser cost (Colander, 2004, p.83).
Supply and demand is one of the most fundamental concepts of economics, and is the backbone of a market economy. Demand refers to how much quantity of a product or service is desired by buyers, while the quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand relationship. Supply represents how much the market can offer, while the quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price. The correlation between price and how much of a good or service is supplied to the market is known as the supply relationship. Price, therefore, is a reflection of supply and demand (Colander, 2004, p.86).
The law of demand states that “Quantity demanded rises as price falls, other things constant, or alternatively, quantity demanded falls as price rises, other things constant” (Colander, 2004, p.83). The iPhone phenomenon that took place in 2007 is a good example of this economic principle at work. Apples iPhone was released into the U.S. market on June 2007. The release came after a great deal of advertising and media hype that ensured that the demand for the product would outweigh the supply. Quite simply, there were more consumers wanting to purchase the product than there was product available. The retail price for the phone was $499. Many consumers, however, paid a great deal more than the $499 sticker price to acquire the phone (Apple, 2007).
On the morning of the U.S. release, retailers across the nation sold out of the product within just a few hours of opening their doors to consumers. In the weeks that followed however, many consumers purchased the unit from sellers on on-line auction sites and even from individuals in parking lots for as much as $1200. The reason for this was that the supply was significantly less than the demand for the product. News reports across the nation showed footage of people lining up days ahead of June 29 in order to secure a place in line at retailers that would have the product available on the release date. In some cases individuals pitched tents and resided in parking lots for as many as 7 days to ensure that they would be able to purchase this phone (Sacco, 2007). In these cases, social pressures, wants, desires and a lack of supply led individuals to pay high prices for the highly-demanded product. This now has caused a shift in the supply curve that shows the change in the supply, which makes the demand exceed the supply.
By October 2007, reporters in the consumer electronics industry were reporting that the supply of the iPhone would continue to be scarce into the holiday season of 2007. The reports indicate that pricing had dropped and remained fairly constant around the