Definition of Demand Curve
The demand curve is a graph that shows the relationship between the quantity of a good supplied and the price set for that good. The demand curve shows how many consumers will buy an item at each different price level.
The demand curve shows that the higher the price of a good, the fewer consumers will buy it. Conversely, the lower the price of an item, the more consumers will buy it. Companies use this demand curve to determine the right price for a product or service to increase sales.
Definition of Supply Curve
The supply curve is a graph that shows the relationship between the amount of an item sold and the price set for that item. The supply curve shows how much of an item will be sold at different price levels.
In general, the supply curve shows that the higher the price of a good, the more producers will sell it. Conversely, the lower the price of a good, the fewer producers will sell it. Companies use this supply curve to determine the right price for a product or service to increase sales.
In economic analysis, the supply curve is often combined with the demand curve to understand how the price of a good is determined in the market. The demand curve shows how many consumers will buy an item at each different price level. When the price of an item increases, producers will tend to increase the supply of that item to the market, whereas when the price falls, producers tend to reduce the supply of that item to the market.
When the price of an item in the market is stable, demand will balance with supply. However, if the demand is higher than the supply, the price will increase, whereas if the supply is higher than the demand, the price will fall.
Factors Affecting the Demand Curve
Several factors can affect the demand curve for a good or service, including:
- Price of other goods: When the price of other goods frequently purchased with an item increases, demand decreases, and vice versa.
- Income of consumers: the higher the income of consumers, the higher their ability to buy goods considered luxuries, so that demand will increase.
- Price level: the higher the price of an item, the fewer consumers will buy it so demand will fall.
- Level of consumer desire: When a consumer’s desire to have a good or service increases, the demand will increase.
- Level of competition: the more companies offering the same product, the less likely prices will increase, thereby increasing demand.
- Level of consumer confidence: when consumer confidence in a good or service increases, demand will increase.
- Level of the number of consumers: the more consumers there are in the market, the higher the demand will be.
- Level of consumer need: the higher the consumer’s need for a good or service, the higher the demand will be.
- Tax rate: when taxes increase, the price of a good or service will increase so that demand will decrease.
- Inflation rate: when the inflation rate increases, the price of goods or services will increase, so the demand will decrease.
Factors Affecting the Supply Curve
Several factors can affect the supply curve of a good or service, including:
- Prices of raw materials: when the price of raw materials used to produce an item increases, production costs will also increase, so producers tend to reduce the number of goods sold to the market.
- Technological level: the higher the technology used in the production process, the more cost-efficient the production will be, so producers tend to increase the number of goods sold to the market.
- Price level: the higher the price of an item, the more producers will sell it so that the supply will increase.
- Level of competition: the more companies offering the same product, the less likely prices will increase, thereby increasing supply.
- Tax rate: when taxes increase, production costs will increase, so producers tend to reduce the number of goods sold to the market.
- Inflation rate: when the inflation rate increases, the price of goods or services will increase, so producers tend to increase the number of goods sold to the market.
- Rate of profit: the higher the profit expected by producers, the more goods are sold to the market.
- Production cost level: the lower the production cost of an item, the more goods will be sold to the market.
- Tier number of producers: the more producers there are in the market, the higher the supply will be.
- Level of producer demand: the higher the demand by producers for a good or service, the higher the supply will be.
Examples of Demand and Supply Curves
Here is an example of a demand and supply curve:
Examples of demand curves:
If the price of bread is Rp. 2,000, the consumer will buy 200 loaves per day. If the price of bread is Rp. 4,000, the consumer will buy 100 loaves per day. If the price of bread is Rp. 6,000, the consumer will buy 50 loaves per day. If the price of bread is Rp. 8,000, the consumer will buy 20 loaves per day.
The demand curve for bread is as follows:
| Price (Rp) | Amount (bread per day) |
|---|---|
| 2.000 | 200 |
| 4.000 | 100 |
| 6.000 | 50 |
| 8.000 | 20 |
Example of a supply curve:
If the price of bread is Rp. 2,000, the producer will sell 400 loaves per day. If the price of bread is IDR 4,000, the producer will sell 300 loaves daily. If the price of bread is Rp. 6,000, the producer will sell 200 loaves per day. If the price of bread is IDR 8,000, the producer will sell 100 loaves daily.
The supply curve for bread is as follows:
| Price (Rp) | Amount (bread per day) |
|---|---|
| 2.000 | 400 |
| 4.000 | 300 |
| 6.000 | 200 |
| 8.000 | 100 |
Difference between Demand Curve and Supply Curve
There are several differences between the demand curve and the supply curve, namely:
1. Sources of demand and supply
The demand curve shows the demand from consumers, while the supply curve shows the supply from producers.
2. Relationship with price
The demand curve shows the relationship between the number of goods purchased and the price of goods, while the supply curve shows the relationship between the number of goods sold and the price.
3. Direction of movement
The demand curve moves down when the price of a good increase and moves up when the price of a good falls. Conversely, the supply curve moves up if the price of a good increase and moves down if the price of the good falls.
4. Goal
The demand curve is used to determine the level of demand from consumers at different price levels, while the supply curve is used to determine the level of supply from producers at different price levels.
5. Factors that influence
The demand curve is influenced by factors such as the price of other goods, consumer income, price level, level of consumer desire, level of competition, level of consumer confidence, level of several consumers, level of consumer needs, tax rate, and inflation rate.
Meanwhile, the supply curve is influenced by raw material prices, technology level, price level, competition level, tax rate, inflation rate, profit level, production cost level, number of producers, and producer demand level.
Conclusion
Based on the description of the supply and demand curves above, the amount of stock of goods or products is one of the success factors in doing business. Therefore it is necessary to manage stock in the right way. Because without management, which includes periodic monitoring, inventory can be damaged or can no longer be used. This naturally leads to reduced supply, which affects supply and demand. Managing and monitoring every aspect of the business takes work as a business owner.
Especially if the company is managed and already has branches, many employees and customers, misjudgment, strategy, and decision-making will have a big impact on how the company operates in the future.
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