Demand & Supply

Karibu! Let's Uncover the Market's Secret Language

Habari mwanafunzi! Ever wondered why the price of unga (maize flour) sometimes goes up, especially before an election? Or why avocado prices drop so much when they are in season that you can buy a whole bunch for just a few shillings? It’s not magic! It’s the powerful forces of Demand and Supply at work. These two "invisible hands" control the prices of almost everything you buy, from your morning mandazi to your Safaricom data bundles. By the end of this lesson, you'll be able to see these forces everywhere and understand the economy of our beautiful Kenya a lot better. Let's begin!

Part 1: Understanding DEMAND (The Buyer's Side)

In economics, demand isn't just about wanting something. I might want a brand new Range Rover, but if I don't have the money, it doesn't count as economic demand!

Demand is the quantity of a good or service that consumers are willing AND able to buy at a given price during a specific period.

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

• When the price of a good goes UP 🔼, the quantity people demand goes DOWN 🔽.
• When the price of a good goes DOWN 🔽, the quantity people demand goes UP 🔼.

Think about it: If your local shop sells samosas for Ksh 20, you might buy two. But if they suddenly increase the price to Ksh 50, you might decide to buy none at all! That's the Law of Demand in action.

The Demand Schedule and Curve

We can show this relationship in a table (a schedule) and a graph (a curve).

Let's look at the demand for samosas in your school canteen per day.

    Demand Schedule for Samosas
    +---------------+----------------------+
    | Price (Ksh)   | Quantity Demanded    |
    +---------------+----------------------+
    |      50       |          10          |
    |      40       |          20          |
    |      30       |          35          |
    |      20       |          55          |
    |      10       |          80          |
    +---------------+----------------------+

If we plot this on a graph, we get a Demand Curve. Notice how it slopes downwards from left to right, showing that as price falls, quantity demanded rises.

    Price (P)
      ^
   50 |   *
      |    \
   40 |     *
      |      \
   30 |       *
      |        \  D
   20 |         *
      |          \
   10 |           *
      +----------------------------> Quantity (Q)
          10  20  35  55  80

Real-World Scenario: Matatu Fares

Think about travelling from Nairobi CBD to Ngong. During off-peak hours (like 11 AM), the fare might be Ksh 80. The matatus struggle to get full. But during the evening rush hour (5 PM), when everyone wants to go home, the conductors shout "Mia moja hamsini! Ngong mia moja hamsini!" (Ksh 150). Even at that higher price, people are scrambling to get a seat. This shows how demand affects price, but the basic principle holds: if the price were Ksh 500, far fewer people would take that matatu; they'd look for other options!

What Causes Demand to Change? (Determinants of Demand)

Besides price, other things can make you buy more or less of a product. When these factors change, the *entire demand curve shifts* to the left (decrease) or to the right (increase).

• Income of the Consumer: If your parents give you more pocket money, your demand for things like movies or snacks will increase (shift to the right).
• Price of Related Goods:
  • Substitutes: These are goods you can use in place of another. E.g., Chapati and Rice. If the price of rice goes way up, the demand for chapati flour will increase.
  • Complements: These are goods used together. E.g., a phone and data bundles. If the price of smartphones drops, the demand for data bundles will likely increase.
• Tastes and Preferences: If a popular musician wears a certain brand of shoes in a music video, the demand for those shoes among young Kenyans will shoot up!
• Future Price Expectations: If you hear that fuel prices will increase by Ksh 15 tomorrow, what happens? Everyone rushes to the petrol station today! The current demand increases.
• Population: As the population of a town like Ruiru grows, the demand for housing, food, and transport also increases.

Image Suggestion: An overhead, vibrant, and colourful photograph of a bustling open-air market in Kenya, like Gikomba or a local county market. Show people actively buying and selling fresh produce like tomatoes, sukuma wiki, and fruits. The mood should be energetic and lively.

Part 2: Understanding SUPPLY (The Seller's Side)

Now let's switch hats and think like a producer or a seller—like a farmer with a field of maize or Mama Benta who makes the samosas.

Supply is the quantity of a good or service that producers are willing AND able to offer for sale at a given price during a specific period.

The guiding rule here is the Law of Supply, which is the opposite of the Law of Demand:

• When the price of a good goes UP 🔼, the quantity producers supply goes UP 🔼.
• When the price of a good goes DOWN 🔽, the quantity producers supply goes DOWN 🔽.

This makes sense! If you are a farmer and the price of maize is very high, you will be motivated to plant more maize next season to earn more profit.

The Supply Schedule and Curve

Let's go back to Mama Benta's samosas.

    Supply Schedule for Samosas
    +---------------+----------------------+
    | Price (Ksh)   | Quantity Supplied    |
    +---------------+----------------------+
    |      50       |          60          |
    |      40       |          50          |
    |      30       |          35          |
    |      20       |          20          |
    |      10       |          5           |
    +---------------+----------------------+

The Supply Curve for this data slopes upwards from left to right. This shows that as the price increases, sellers are willing to supply more.

    Price (P)
      ^
   50 |               *
      |              /
   40 |             *
      |            /
   30 |           *  S
      |          /
   20 |         *
      |        /
   10 |      *
      +----------------------------> Quantity (Q)
           5  20  35  50  60

What Causes Supply to Change? (Determinants of Supply)

Just like demand, factors other than price can change the entire supply, shifting the curve.

• Cost of Production: If the price of cooking oil and flour (inputs for samosas) increases, Mama Benta's costs go up. She might supply fewer samosas at each price level (shift to the left).
• Technology: If a farmer gets a new machine (like a tractor) that makes planting faster and cheaper, they can supply more produce (shift to the right).
• Weather Conditions: For our farmers, this is everything! Good rains mean a bumper harvest of maize, increasing its supply. A drought drastically decreases the supply.
• Government Policy: If the government gives farmers a subsidy (financial help) for fertilizer, it lowers their costs, and they can supply more. If the government adds a new high tax on milk producers, the supply of milk might decrease.

Part 3: The Magic Point - MARKET EQUILIBRIUM

So, we have buyers who want low prices and sellers who want high prices. How do they agree? They meet at the Equilibrium Point. This is the price where the quantity demanded by consumers is exactly equal to the quantity supplied by producers.

Equilibrium Price: The price where quantity demanded = quantity supplied. (Also called the market-clearing price).

Equilibrium Quantity: The quantity bought and sold at the equilibrium price.

Let's combine our demand and supply curves for samosas:

    Price (P)
      ^
      |         \   S   /
      |          \ |  /
   50 |   *       \|/       *
      |    \      *      /
   40 |     *     |     *
      |      \    |    /
   30 |       \---E---/  <-- Equilibrium (Pe = 30, Qe = 35)
      |        \  |  /
   20 |         * | *
      |          \|/   D
   10 |           *
      +----------------------------> Quantity (Q)

At Ksh 30, students want to buy exactly 35 samosas, and Mama Benta is willing to supply exactly 35 samosas. The market is balanced! There are no leftover samosas (surplus) and no students who want a samosa but can't get one (shortage).

Let's Do The Math!

In higher-level economics, we use equations. Don't worry, it's just simple algebra!

Suppose the demand and supply functions for bread in a town are:

• Demand Function: Qd = 100 - 2P (Qd is Quantity Demanded, P is Price)
• Supply Function: Qs = 10 + 4P (Qs is Quantity Supplied, P is Price)

To find the equilibrium, we set them equal to each other: Qd = Qs

    Step 1: Set the equations equal.
    100 - 2P = 10 + 4P

    Step 2: Get all the 'P' terms on one side and numbers on the other.
    100 - 10 = 4P + 2P
    90 = 6P

    Step 3: Solve for P (Equilibrium Price).
    P = 90 / 6
    P = 15

    So, the Equilibrium Price is Ksh 15.

    Step 4: Find the Equilibrium Quantity (Q) by substituting P=15 into either equation.
    Let's use the demand equation:
    Qd = 100 - 2(15)
    Qd = 100 - 30
    Qd = 70

    Let's check with the supply equation:
    Qs = 10 + 4(15)
    Qs = 10 + 60
    Qs = 70

    The Equilibrium Quantity is 70 loaves of bread.

What happens when the market is NOT in equilibrium?

• Surplus (Excess Supply): If the price is set too high (e.g., at Ksh 40), Mama Benta will supply 50 samosas, but students will only demand 20. She will have 30 leftover samosas! To sell them, she will have to lower the price, moving back towards equilibrium.
• Shortage (Excess Demand): If the price is set too low (e.g., at Ksh 20), students will want 55 samosas, but Mama Benta will only be willing to make 20. There will be a shortage! She will realize she can increase the price because so many people want her samosas, moving back towards equilibrium.

Image Suggestion: A simple, clean graphic diagram of a balancing scale. On the left pan, label it "Demand (Buyers)" and have icons of people. On the right pan, label it "Supply (Sellers)" and have icons of factories or shops. The scale is perfectly balanced, with a large "EQUILIBRIUM" label underneath.

You've Made It!

Congratulations! You now understand the fundamental forces that shape the economy. Demand and Supply are everywhere, from the price of airtime to the availability of jobs. Keep observing the world around you, and you'll see these principles in action every single day. Keep up the great work, and you'll master Business Studies in no time!