You will occasionally read or hear news items that say something like, \"the dem

Question

You will occasionally read or hear news items that say something like, "the demand for gasoline exceeds the supply", or that, "the supply of personal computers exceeds the demand." These statements are inherently ludicrous (they don't make sense). Why are these statements technically incorrect? What would a supply and demand graph look like if it portrayed demand exceeding supply? What does a commentator really mean when he or she says the demand for natural gas exceeds the supply? Can you think of any products for which the demand really does exceed the supply or the supply really does exceed the demand?

Explanation / Answer

Supply and demand is perhaps one of the most fundamental concepts of economics and it is the backbone of a market economy. Demand refers to how much (quantity) of a product or service is desired by buyers. 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. 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. The relationship between demand and supply underlie the forces behind the allocation of resources. In market economy theories, demand and supply theory will allocate resources in the most efficient way possible. How? Let us take a closer look at the law of demand and the law of supply.

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