Demand & Supply

Habari, Future Economist! The Secret Language of the Market

Ever wondered why the price of sukuma wiki is low when it rains and high during a dry spell? Or why everyone wants the latest phone, and its price is sky-high at first? Welcome to the world of Demand and Supply! This isn't just a topic in a book; it's the invisible force that runs every market in Kenya, from the mama mboga's stall in your estate to the biggest companies listed on the Nairobi Securities Exchange. By the end of this lesson, you'll be able to see this "secret language" everywhere. Let's dive in!

Part 1: The Buyer's Side - Understanding DEMAND

Demand is not just about wanting something. In economics, demand is the desire for a good or service, combined with the ability and willingness to pay for it.

The most important rule here is the Law of Demand. It's simple:

• When the price of something goes UP ⬆️, the quantity people demand goes DOWN ⬇️.
• When the price of something goes DOWN ⬇️, the quantity people demand goes UP ⬆️.

Think about it. If the price of a boda boda ride to campus doubles, you might choose to walk more often, right? That's the Law of Demand in action!

Image Suggestion: A vibrant, bustling open-air market in Kenya, like Marikiti in Mombasa or Gikomba in Nairobi. Show vendors selling fresh produce (fruits, vegetables) and customers bargaining. The style should be realistic and colourful, capturing the energy of the scene.

The Demand Schedule & Curve

We can represent this relationship using a table (Demand Schedule) and a graph (Demand Curve).

Let's imagine the demand for a cup of chai at the campus cafeteria:

    Demand Schedule for Chai
    --------------------------
    Price (KSh)   |   Quantity Demanded (Cups per day)
    --------------------------
        50        |             10
        40        |             20
        30        |             30
        20        |             40
        10        |             50
    --------------------------

And here is what that looks like on a graph. Notice how the curve slopes downwards.

    Price (P)
      ^
   50 | D *
      |   *
   40 |     *
      |       *
   30 |         *
      |           *
   20 |             *
      |               *
   10 | D - - - - - - - *
      +--------------------------------> Quantity (Q)
           10  20  30  40  50

Part 2: The Seller's Side - Understanding SUPPLY

Now, let's switch hats and think like a business owner or a farmer. Supply is the amount of a good or service that a producer is willing and able to sell at different prices.

The Law of Supply is the opposite of the Law of Demand:

• When the price of something goes UP ⬆️, the quantity supplied goes UP ⬆️.
• When the price of something goes DOWN ⬇️, the quantity supplied goes DOWN ⬇️.

If you were a farmer and the price of maize suddenly went very high, you would be motivated to plant more maize next season to make a bigger profit. That's the Law of Supply!

Image Suggestion: A Kenyan tea farmer in a lush green tea plantation (like those in Kericho). The farmer is smiling, proudly holding up some freshly plucked tea leaves. The image should convey a sense of hard work, success, and connection to the land.

The Supply Schedule & Curve

Let's use our campus chai example again, but this time from the cafeteria's perspective.

    Supply Schedule for Chai
    --------------------------
    Price (KSh)   |   Quantity Supplied (Cups per day)
    --------------------------
        50        |             50
        40        |             40
        30        |             30
        20        |             20
        10        |             10
    --------------------------

On a graph, the Supply Curve slopes upwards. More profit motivates more supply!

    Price (P)
      ^
   50 | S - - - - - - - *
      |               *
   40 |             *
      |           *
   30 |         *
      |       *
   20 |     *
      |   *
   10 | S *
      +--------------------------------> Quantity (Q)
           10  20  30  40  50

Part 3: The Handshake - Market EQUILIBRIUM

So, we have buyers who want low prices and sellers who want high prices. How does anything ever get sold? They meet in the middle! This meeting point is called Equilibrium.

The equilibrium price is the one price where the quantity demanded equals the quantity supplied. Everyone is happy!

      Price (P)
        ^
        |         / S (Supply)
        |       /
        |     /
    Pe--|----*----  (Equilibrium Point)
        |   / \
        |  /   \
        | /     \ D (Demand)
        +----------------> Quantity (Q)
              Qe

• Surplus: If the price is too high (above Pe), sellers supply more than buyers want. Think of mango season in Ukambani – so many mangoes that sellers have to lower prices to sell them all!
• Shortage: If the price is too low (below Pe), buyers want more than sellers are supplying. Imagine tickets for a Sauti Sol concert being sold for only 100 KSh – they would run out in seconds!

Let's Get Mathematical! Finding the Equilibrium

We can find the exact equilibrium point using simple algebra. Let's assume the demand and supply for chapati in a market can be represented by these equations:

• Demand Equation: Qd = 120 - 10P
• Supply Equation: Qs = 30 + 5P

Where 'Qd' is quantity demanded, 'Qs' is quantity supplied, and 'P' is the price in KSh.

Step 1: Set the two equations equal to each other (Qd = Qs).
This is because at equilibrium, the quantity demanded is the same as the quantity supplied.

   120 - 10P = 30 + 5P

Step 2: Solve for P (Equilibrium Price).
Get all the 'P' terms on one side and the numbers on the other.

   120 - 30 = 5P + 10P
   90 = 15P
   P = 90 / 15
   P = 6 KSh

So, the equilibrium price for a chapati is 6 shillings.

Step 3: Substitute P back into either equation to find Q (Equilibrium Quantity).
Let's use the demand equation:

   Qd = 120 - 10(6)
   Qd = 120 - 60
   Q = 60 chapatis

To double-check, let's use the supply equation:
   Qs = 30 + 5(6)
   Qs = 30 + 30
   Q = 60 chapatis

It matches! So, the market will be in balance when 60 chapatis are sold at a price of 6 KSh each.

Image Suggestion: A clean, educational graphic showing the demand and supply curves intersecting. Label the axes 'Price (KSh)' and 'Quantity'. Clearly mark the 'Equilibrium Point', 'Equilibrium Price (Pe)', and 'Equilibrium Quantity (Qe)'. Use bright, contrasting colours to make it easy to understand.

Demand & Supply in Action: The Kenyan Avocado Boom

Think about avocados, especially the Hass variety from places like Murang'a and Kisii. For years, the price for a single avocado at your local market was quite low, maybe 10-20 KSh. This was the local equilibrium between Kenyan farmers (supply) and Kenyan consumers (demand).

Then, countries in Europe and Asia discovered the "green gold"! Suddenly, there was a huge new source of demand. This new international demand shifted the entire demand curve to the right. With the same local supply, this new, higher demand created a shortage at the old price. To solve this, the price had to go up. That's why you now see avocados being sold for 30, 40, or even 50 KSh. It's great for the farmers' income, but it's a perfect real-world example of how a shift in demand changes the price for everyone.

You've Mastered the Basics!

Congratulations! You now understand the fundamental forces that shape our economy. Demand (the buyer's side) and Supply (the seller's side) are in a constant dance, always looking for that sweet spot of Equilibrium. The next time you are at the soko and you hear people discussing prices, you'll know exactly what's going on. You are already thinking like an economist! Keep up the great work.