Economics is definitely the way of life as it helps in ensuring the proper allocation of resources and ensures that these resources do not become scarce in the face of heavy demand. The concept of demand and supply have always been found to be extremely integral to any sort of economic activity performed daily by humans. According to the law of demand, there exists an inverse relation between the price of a product and the quantity demanded. In other words, if the price of a good is higher, the demand for the good will naturally decrease while if the demand of the good is comparatively lower, the demand for the good will naturally increase (Ruttan and Thirtle 2014). Hence, the concept of demand plays an important role in determining the price of the good.
The importance of the concept of demand in everyday life lies in the fact that it helps in ensuring proper allocation of the resources. As the resources produced in the world are limited, it is quite expected that everyone would demand the resources produced, however, the limited resources would become scarce if everyone gets to avail them, and hence increase in demand is always followed by an increase in price. While this helps in increasing the profit of the businessmen selling the products, it also helps in controlling the demand of the consumers, as consumers would not be willing to buy a product once the price goes up, and beyond their purchasing power.
The concept of supply is also an important concept and is very important in our daily life. Unlike the concept of demand, supply is the amount of product supplied by the suppliers to the consumers at a given price and there remains a direct relation between these two factors. As the price of a commodity increases, its supply also increases and vice versa. Suppliers always tend to supply a higher amount of products when the price is high as this results in higher profit margins. However, demand and supply usually have an inverse relation. For example, if the demand for rice increases during the time of drought, the suppliers may not supply more which ensures minimum allocation of resources as well as higher gains as the lesser supply indicates higher price.
In case a company produces 100 umbrellas for monsoon, and the actual consumer demand far exceeds the anticipated demand of the company, the supply of the umbrellas is bound to decrease. However, when the supply of the product is limited and the demand is higher, producers can only produce and supply larger amount of items by influencing the price (Jiménez et al. 2017). They can increase the price so that it helps in increasing the profit of the company, while also controlling the consumers who can actually consume the product. Otherwise, the demand being higher than supply, and price remaining constant, everyone will consume the products leading to scarcity id resources.
Ruttan, V. and Thirtle, C., 2014. The role of demand and supply in the generation and diffusion of technical change(Vol. 21). Routledge.
Jiménez, G., Ongena, S., Peydró, J.L. and Saurina Salas, J., 2017. Do demand or supply factors drive bank credit, in good and crisis times?.