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The concept of supply and demand is the basic foundation behind which the science of economics is based upon. First, it is important to note that economics is the science that deals with the analysis of the production, subsequent distribution and sale of commodities. The basis behind this is the concept of supply and demand wherein supply refers to the amount of commodities (whether in reference to products or services) that are present within the market which it can subsequently offer and demand which entails the amount of said commodity that is desired by consumers (or in this case buyers) (Graves, Sexton and Calimeris 313).
One of the fundamental principles of mercantile practices is matching supply and demand in order for both to achieve a form of equilibrium wherein the amount of supply matches the amount of demand present. However, as explained by Englander and Moy, such a situation is not always possible due to the inherent finite nature of supply and fickle attribute of demand. Commodities are, by their very nature, finite and thus their value is based on how limited they are versus the amount of demand that is present within the market (Englander and Moy 291).
While there are different levels of what can be defined as “finite”, the fact remains that the price of commodities is influenced by how much people want them and their current amount within the open market (Englander and Moy 291). However, on the other end of the spectrum, demand is based on how much of a product people actually want. For example, despite the rarity of a particular commodity, if there is no demand for it, then its value would be quite low.
Take for example samples of water taken from the top of Mt. Everest, despite its level of rarity there is no demand for it and, as such, prices for such samples are quite low. In cases though where demand is high and supplies are low, then the result would be a rapid escalation of the price of the product. This can be seen in the case of gold wherein its limited amount versus the amount of demand for it has resulted in even a few grams being worth several hundred dollars.
Effects of High Demand
One of the best ways of seeing the power of supply and demand in action is to simply look at the case of property buying and rental agreements within New York City. If you are an ordinary office worker within the city, you have two choices when it comes to working and living there, you can either live in the suburbs and work in the city (this increases your commuting time by several hours) or you can live in a shoe box apartment and endure paying more than half your salary for an apartment the size of closet.
Due to the sheer level of demand for rental space within New York, rental prices have reached absurd levels for even the smallest of spaces. Purchasing properties, even on the outskirts of the city, is simply out of reach for most people since even the further plot of land from the business center can cost several thousand dollars per square foot! This shows how high demand and limited supply interact to create sky high prices that consumers have to endure. If a person wants to live or rent in New York, they must accept the high prices that come with it.
Englander, Fred, and Ronald L. Moy. “Supply, Demand, And The Internet–Economic Lessons For Microeconomic Principles Courses.” Journal Of Education For Business 78.5 (2003): 290-294. Print.
Graves, Philip E., Robert L. Sexton, and Lauren M. Calimeris. “The Educational Choice Anomaly For Principles Students: Using Ordinary Supply And Demand Rather Than Indifference Curves.” Journal Of Economic Education 42.3 (2011): 310-314. Print.