Microeconomics

Economic Theory of Demand and Supply

People specialize in the production of goods and services — or more existentially, as dictated by their environment, heredity, and/or fate in order to alleviate human suffering [their own existence included]. In the process of pursuit of own self-interests to satisfy needs and wants, individuals succumb to the unintended, invisible market forces that compel others to react by supplying necessities to make life even better in an engagement that leaves interactive parties better off as oppose to having excesses of what one produces in abundance, thus the very essence of efficient allocation of resources in the society studied in microeconomics (Stead and Stead, 2009, p.42).
Economists are in agreement that prices and quantities are descriptively the most observable attributes of individual interests that interact within a market structure to facilitate mutually beneficial exchanges as envisaged by Adam Smith (Friedman, 2009, p.145). Thus, for the exchange of interests (expressed in terms of goods and services) to occur, demand and supply have to exist, but at some costs. From the field of academia to industrial circles, the basic premises of supply and demand are integrated into the daily actions of the society. To be sure, the theoretical mastery of economics depends much on the understanding of the theory of demand and supply (Gandolfi, Gandolfi, and Barash, 2002, pp. 5-6). The theory of demand and supply is, therefore, an organizing principle that coordinates the production of goods and services (in quantities, often referred to as output) to satisfy societal needs through the market/price mechanism. Intuitively, the price mechanism moderates the exchanges to the point where goods and services delivered by suppliers (supply side) and paid for by the consumers (demand side) always tends towards a state balance with reference to the compensation packages received by either side. The dynamics of demand and supply applies best to a theoretically free market&nbsp.structure where no group of buyers and/or sellers holds the sway over the resultant market prices.&nbsp.

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