Pubdate: Sat, 27 Feb 2016
Source: Citizen, The (South Africa)
Copyright: 2016 The Citizen
Author: Munya Duvera


Supply and Demand: The Rules Can Play Tricks With the Unwary

Having the best product on the market means very little when no one 
wants it any more.

Heroin, cocaine and ecstasy, to name a few commonly known drugs, have 
been a menace to governments worldwide. Billions are spent every year 
on the war on drugs and a greater portion of that is allocated to 
battling the supply end.

But the problematic issue is really on the demand side, coming from 
those who buy and consume drugs.

Raging debate

The debate on which of the two sides - supply or demand - is the 
motive force in the free market has been raging among economists for decades.

Personally I believe demand determines the supply. Because if every 
individual that consumes narcotics decided to stop doing so, then the 
suppliers without any buyers would have no choice but to stop 
manufacturing and selling. Why? Because it is a business and when a 
business has no customers, it collapses even though it still has a product.

As for the pro-supply economists, they say whenever there is a change 
in the supply it affects the demand. South Africa is caught in the 
grip of a drought. Therefore the supply of food items which farmers 
produce has declined, yet the demand has not. The shortage of supply 
therefore has impacted the supply-demand curve, prompting price 
changes for a host of items.

True, but the argument remains that the only reason there is a 
shortage of supply is because the demand is there. If we all stopped 
consuming bread and started eating apples, would we care that the 
drought has impacted wheat farmers or would we be concerned about 
apple farmers?

What pro-supply economists forget is that for every successful 
product there are thousands of failed ones. And the only reason they 
failed was simply because the demand was not there. And that could be 
the reason why your business might not be flourishing  because you 
are focusing on what you can supply, rather than what the demand dictates.

Word of the wise

I had a chat with Tseke Nkadimeng, CEO of Afric Oil and founder of 
Moopong Investment Holdings, and this is what he had to say on the 
matter: "In the pre-modernisation era of the economic system, the 
demand side had a far greater impact, where companies assessed what 
products and quantities consumers wanted and thereafter produced 
based on that information.

"But in today's economy the supply plays a larger role based on its 
efficiencies of production and economies of scale. At the same time, 
the type of industry has a significant say in the matter. Fast-moving 
consumer goods rely heavily on demand, with resources, such as 
petroleum, not so much."
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MAP posted-by: Jay Bergstrom