Within Supply and Demand – we’ll be looking at how our current economic system decided to answer some of these questions.
Not all wants and needs are considered to be demands in the world of economy. Your need or want will only be interpreted as an actual demand once you have the purchasing power to acquire the goods and services to satisfy your particular want or need.
This practically implies that you can ‘want’ and ‘need’ all you want – if you do not have the financial means to acquire these resources, then you will not get them. This is obviously very problematic and a very well – stupid – way to set up an economic system. It does in no way whatsoever consider everyone but only those who have money. If everyone at some point had been given an equal amount of money – it might have worked out for a little while, but even that never happened. So the decision to work with demand in terms of wanting/needing something and having the money to back up this want/need – is very deliberate, since we’ve never at any point in history have been ‘equal’ in terms of purchasing power and so the decision to only consider/distribute towards those who have money, implies a very specific preference of people with money over people with no money. Problem!
So currently, the economic system is set up to provide only to those with Money – and so within an Equal Money System, to be able to provide for all – we’ll simply provide everyone with money so EVERYONE can be included and be ‘represented’ within the system through having money available.
The interaction and relationship between supply and demand
illustrates how prices are determined and is one of the most fundamental
concepts to the free market economy.
As mentioned in previous posts, resources such as goods and
services are scarce. They are available in limited quantities only. By setting
a price on goods and services you are ‘scaling down’ the scope of people who
can afford or demand the good or
service.
Prices are determined by looking both at how much people are
willing to pay for a particular good and how much suppliers are willing to supply
at any given price – and so as these two come together and cross – a price has
been determined (this will become clearer later).
The amount of people who are able to purchase the product is
thus controlled through the price.
For instance, everyone might want bread to eat – but suppliers are not interested in supplying everyone with bread for free because that would not make them any money, and so instead of producing a lot of bread, a limited amount is produced which is not enough for everyone – and so people start “competing” to get themselves a loaf of bread, which is done basically as a form of ‘bidding’ and so for instance the price will be set at $1 a loaf – and all the people who do not have this money are then ‘eliminated’ from the equation and now only those with money will be able to get bread. And so the illusion is created that everyone who wants bread gets bread and everyone is happy – while it is only this way because everyone who did not have the means to get the bread has been eliminated through the principle of ‘demand’.
For instance, everyone might want bread to eat – but suppliers are not interested in supplying everyone with bread for free because that would not make them any money, and so instead of producing a lot of bread, a limited amount is produced which is not enough for everyone – and so people start “competing” to get themselves a loaf of bread, which is done basically as a form of ‘bidding’ and so for instance the price will be set at $1 a loaf – and all the people who do not have this money are then ‘eliminated’ from the equation and now only those with money will be able to get bread. And so the illusion is created that everyone who wants bread gets bread and everyone is happy – while it is only this way because everyone who did not have the means to get the bread has been eliminated through the principle of ‘demand’.
This is how the forces of supply and demand attempt to come
to a point of equilibrium. This equilibrium price per unit comes about where
the quantity demanded by consumers will equal the quantity supplied by
producers (more on this later).
The Law of Demand
states that: with all other factors
remaining equal – the higher the price of a good, the fewer people will demand
that particular good. In other words: when the price goes up, the demand goes
down. The ‘reasoning’ behind this, is that humans are compelled to want to
obtain everything as cheap as possible – this is considered to be in their best
interest.
Let us illustrate the Law of Demand with the use of a graph:
In the above graph, A, B and C are point on the demand curve
(D). At point A (highest price), a certain amount Q1 is demanded (lowest
quantity). As the dot moves from A to point B, to point C: the price decreases, and the quantity demanded
increases.
The Law of Supply
states that: as the price of a good or service increases, the quantity produced
and supplied will increase. The logic applied here is that a producer will
increase his production and supply of a good or service when prices increase,
because the producer wants to use this as an opportunity to obtain greater
revenue.
As you can see in the
above chart, the quantity supplied will increase as price increases. Both the
person who demand and the person supplying are following their own
self-interest – which as an effect has them going in opposite directions: As
prices rise, demand will become less but supply will become more – there is a
constant polarity pull in play.
(Note that these quantities are always in relation to a
particular time frame, where a particular amount is demanded per day / week /
month / year , etc.)
There is always a certain time-lapse present between a change in demand and a change in
supply. This sometimes causes unfortunate outcomes. If one year for instance,
the demand for a particular product such as ‘cooling fans’ has been fairly low
due to unusual cold weather circumstances – the supplier might feel the need to
respond to this decrease in demand by decreasing fan production – because he is
not getting all of his stock sold. If in the next couple of months a sudden
heat wave occurs then the demand will change instantly but there will be a
shortage of fans until the supplier has had the time to respond to this change
in demand. This dynamic of producing more and less in relation to demand can
sometimes we quite problematic when we are dealing with for instance crops.
Crops are seasonal, sometimes annual and thus the time-lapses taking place are
greater in proportion. If the farmer notes a particular demand for corn at
point X in time, he will plant and plan according to that demand. But by the
time his crop is ready for harvesting, the demand will already have changed
overtime and his current obtained supply will no longer match the new current
demand. If this happens on a big scale, the consequences grow in the same
proportion (and if this crop is all you’ve got – which is a situation many poor
famers currently find themselves in – and if you don’t get your crop sold
because of a change in demand, and had put everything into this crop = then you’re
in big shit).
Equilibrium
If we now combine both the supply and the demand curve into
one graph, we can indicate where the point of ‘equilibrium’ would be:
Where the supply and demand curve meet, is the point of
equilibrium. In this instance it is represented by point B through which both
curves cross.
In theory, the price for the particular good concerning
would thus be set at the price P2 with a quantity supplied of Q2.
The same way as prices are calculated for products, wages
and salaries are calculated for jobs. Their ‘value’ is equated in terms of
scarcity and availability.
Note though that this is only a ‘perfect theoretical model’
and that in reality a lot more factors influence the determination of prices.
Even though reality will not follow this exact scheme, it gives you an idea of
what type of ‘reasoning’ the economic world follows – which will assist in the
future understanding of discussions pertaining economic issues.
Note: The economic
world acknowledges that this is a somewhat unfair and flawed system - and that
not everyone having equal access to all resources is just an “inconvenient fact
of life”. The current system is justified by claiming that we would be worse
off with any other alternative. This is true to a certain extent, as there is
no solution or improvement possible within the framework of the system itself
(which will become clearer as we progress through the various blogs). That is
why the Equal Money System is not just a re-alignment of our current monetary
and economic system – but a complete and total replacement. -- it will thus not be governed by the same rules and
forces as our current system. We have been so conditioned to think “inside the
box” that it is hard to fathom and envision an Equal Money System. We easily
make the mistake of relating Equal Money concepts back to what we already know
as the current system we live in (= “the box”). This ‘drawback’ influences how
we perceive and interpret the concepts we hear or read about as we are placing
them in an incorrect context. It is thus important to ‘step back’ for a moment
when processing information on the Equal Money System and allow yourself to fully
grasp what is actually said
and not what you *think* is being said.
Excess Supply
[price is too high]
If the price of a product is set too high there will be an
excess of supply for that particular good or service – and the price setting
will be labelled as ‘inefficient’.
Producers want to produce a lot of a good or service in the
hope to increase their profits – while the consumer will find the product or
service less and less appealing and will purchase it in lesser quantities
because the price is seen as too high. Eventually the supplier will be forced
to lower his price in an attempt to sell all of his product or services. When
the price is lowered to a point where all products and services are consumed –
equilibrium is reached. The market is perceived as saturated. Any price above
the equilibrium price will leave an excess of supply.
Excess Demand [price is too low]
If the price of a good or service is set below the equilibrium level – an excess
of demand will be created. There is a greater quantity demanded of the
particular good or service than there is available. When this happens, the
price of the good or service will be increased until equilibrium is reached –
to lower the level of competition.
This whole Supply and Demand model just re-emphasizes how we
are allowing conflicting self-interest to rule the world – instead of aligning
our separate individual self-interests to One interest as what is Best for All
Life – and within that eliminate the need for all these various models and
interaction models to tell us what to do according within the respect and
honour of everyone’s separate little mind reality bubble and within that not
provide basic necessities for everyone.
The next point to be discussed (after Self Forgiveness and
Commitment Statements) will be how the government will try and intervene to
make things more equitable and how it works out just the opposite.
Thank you for this
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