Many times, when we watch or listen to economic news, we often hear about Demand, Supply, and Over Supply. TerraBKK will guide you through an easy-to-understand version of economics to help you grasp the meaning of Demand and Supply. Many people may still wonder what these terms actually mean.

In simple terms:

  • Demand refers to the "desire to buy."
  • Supply refers to the "desire to sell."

When demand and supply meet at a price and quantity that both buyers and sellers are satisfied with, a market equilibrium is established.

The Law of Demand and The Law of Supply

In economics, there are fundamental principles called the Law of Demand and the Law of Supply, which explain the relationship between price and quantity:

  • Law of Demand: Consumers tend to buy more when prices decrease and buy less when prices increase, assuming other factors remain constant.
  • Law of Supply: Sellers tend to supply more when prices rise and supply less when prices fall, assuming other factors remain constant.

Since price and quantity are inversely related in demand but directly related in supply, they form opposite relationships. Economists often illustrate these concepts using graphs:

  • Demand curves slope downward from left to right (Downward Sloping).
  • Supply curves slope upward from left to right (Upward Sloping).

Over Supply and Over Demand

  1. Over Supply (Excess Supply) occurs when supply exceeds demand. This leads to an oversupply of goods and services in the market, causing prices to drop.

    • In real estate, for example, an Over Supply situation can occur due to delays in construction. Since real estate projects take 1-2 years to complete, the supply might not match the current demand, leading to unsold properties.

  2. Over Demand (Excess Demand) occurs when demand exceeds supply. This leads to shortages in goods and services, causing prices to rise until a new equilibrium is reached.

For a more detailed explanation, visit TerraBKK.