As an economic student, I remember that I did not understand the law of supply and demand.
As a college professor, I had to explain it. So I studied particularily that subject. The following is what I found!
The Economists Views
Everybody knows the demand is a relation between price and quantity; for exemple, consumers will demand more when the price is lowering. That is the law of demand.
Graph of the demand
On the contrary, on the supply side, when the producers want to increase the quantity of their products or services, the more the products or services will cost, which is the result of scarcity phenomena. This is the law of supply as presented in any good economic textbook.
Graph of the supply
The Dictionnary Definitions
French dictionnaries give these definitions for supply (my translations):
* "Quantity of a good or service that can be sold on the market at a given price" (Larousse) or
* "Quantity of products or sercices supplied (sic) on the market" (Robert).
Webster gives these definition for Supply and Demand:
* Supply: A quantity or amount of something available
* Demand: a necessary thing; the state of being wanted or sough for.
According to the dictionnary definitions, the decision of the marketers in Walmart, being to increase their sales while lowering their prices, would be a supply decision and would obey to the law of supply.
How to understand that the marketer who is doing a so said supply decision will lower the price in order to increase quantities, while the law of supply says that this relation between price and quantity varies directly with the quantity supplied?
So, there is a misunderstanding problem somewhere!
Whether the Economistes are misleading or whether the dictionnairies in every languages are not precise enough?
In my teaching, I am taking a different teaching approach in order to avoid this problem. I am teaching that both supply and demand are a kind of relation between price and demand. That means that being a relations, they are abstract, not concrete or physical entities. Both supply and demand being relations, they present the same part of these relations: prices and quantities.
The difference between supply and demand comes from their finality. As for the demand, it relates to the buyer behavior and the will to satisfy these infinite needs as much as possible. As for the supply, it relates to the producer, who is limited by the relative scarcity of ressources and who wants to succeed in spite of this scarcity according toi its production process as establish.
Supply is the relation between price and quantity in the production process, fighting agains scarcity; demand is the relation between price and quantity in the consumption, in order to meet their needs.
As supply and demand both are relations, they are not prices of quantities that we can mesure.
Saying that supply equals demand means that both relations join together somewhere, at the market equilibrum, where the relaton of supply equals the relation of demand, because the price supplied is equal to the price demdnded and the quantity supplied is equal to the quantity demanded, and vice versa.
Graph of the equilibrum between the supply and the demand
Getting back to the dictionnaries, their definitions of supply could be these of demand! So, they are, at the minimum, incomplete and ambiguous in the economic world.
By consequence, this demonstration shows that our vocabulary needs to change in order to be more precise. Instead of saying that the supply increases or diminishes, which is right for the dictionnary definitions, we should say that the prices or the quantities of such product or service in increasing or diminishing, which will be right for the dictionnaries and the economists too! The same for the demand..
And when the relation between the prices and the quantities fondamentaly changes, let's say that the supply curve or the demande curve is shifted or changed.
And the most horrible saying is: "Increasing the supply to satisfy the demand".