In the beginning Adam Smith created the demand and the supply. Now the economy was formless and...

Actually Adam Smith did not create demand and supply, he wasn’t even the one to put forth the idea, it was Alfred Marshall. But Smith is the father of economics and almost everyone knows who he is so a little mistake won’t kill anyone, hopefully.

Before going into economics in detail I believe that the most important concepts to learn are demand and supply since their intersection point is the one and only happy place for everyone. Now thinking about it, talking about the difference between micro and macroeconomics or even the ppc curve would have been the best to begin with but supply and demand is pretty fun so I’ll come to those later. Let’s begin with demand.

Before anything, we should know that demand is about buyer behavior. You may ask: who are the buyers? Fair enough. The buyers are consumers (households) and firms, consumers are the buyers of goods and services provided by the product market, while firms are the buyers of factors of production in the resource market (thank you IB HL Economics book for your support). This time you might ask what the factors of production are, again, fair enough. Factors of production, in short FOP, are land, capital, labour and entrepreneurship. Basically the resources needed to produce anything (goods and services if we want to sound cooler). So demand, the word demand is pretty self-explanatory but there is one part that I think is missed when we try and understand it. To create demand it is not enough that the consumers want the good or even need it. They also should be ABLE to get it, so both ability and willingness is required for demand. Kind of a capitalist point of view, even elitist maybe, basically disregarding the people that actually need the product but are not able to get it financially. However, to be honest if someone does not have the ability to get something it does make sense to some extent that their want or need is overlooked. There is no way for them to contribute statistically or to the market, so adding in their wants and needs would just create unreliable data, right? Well if you look at it from an economists angle, hell yeah! But from a humanitarian perspective, how could you disregard those people you capitalist pig! I mean this is an economy blog so capitalism will be a recurring topic, that doesn’t mean economists are all capitalists but yeah no way I’m going to pretend it doesn’t exist or hold back my view about some models that are capitalist (maybe give my own capitalist ideas at times, *sarcasm*).

Definition of supply ,on the other hand, is less likely to be blamed with capitalism, at least by me. Similar to demand, supply is once again about willingness and ability, but this time by sellers. Just as how demand is the quantity the BUYERS are able and willing to PURCHASE at a particular time at different price levels, supply is the quantity the SELLERS are willing and able to PRODUCE at a particular time at different price levels. Pretty similar right? But wait, who are the sellers? No need to worry, no new concept or vocabulary is going to be introduced, because sellers are the reverse of the buyers. If that makes sense? So, in the product market buyers are consumers (households) and in the resource market they are firms The sellers ,on the other hand, are consumers in the resource market and firms in the product market. Isn’t that amazing, thinking of the resource market might be more difficult than the product market since most of us look at it from the consumer point of view and we buy what firms make. But think of it like this: what do firms demand? Factors of production. What are households? Labour. What is labour? A factor of production. So households can be seen as the goods and services of the firms.

This is what demand and supply are basically, there are many factors that effect them and they both have their own laws (I know fancy) but I think as a starter this should be enough. I guess this is it for now, it is pretty easy to grasp these two concepts but I’ll put some definitons down below just in case.

Demand: The quantity of goods and services the buyers are willing and able to purchase at a given time at different prices.

Supply: The quantity of goods and services that the sellers are willing and able to produce at a given time at different prices.

Sellers in product market: Firms/Businesses

Sellers in resource market: Households/Consumers

Buyers in product market: Households/Consumers

Buyers in resource market: Firms/Businesses

Factors of production: Resources needed to produce goods and services; land, labour, capital and entrepreneurship.