Demand & Supply

Habari Mwanafunzi! Welcome to the Market!

Ever wondered why the price of unga (maize flour) sometimes goes up, and everyone starts talking about it? Or why avocados are so cheap in April but expensive in December? It’s not magic! It’s one of the most powerful ideas in Business Studies: Demand and Supply. This is the "invisible hand" that runs the market. Today, we are going to become detectives and uncover exactly how it works. Let's dive in!

Part 1: The Customer's Side - Understanding DEMAND

First, let's be clear. In economics, Demand is not just about wanting something. You might want the latest iPhone, but that's not economic demand. Demand is the desire for a good, backed by the willingness AND ability to pay for it.

The main rule here is the Law of Demand. It's quite simple:

• When the price of a product goes up ⬆, the quantity people are willing to buy goes down ⬇.
• When the price of a product goes down ⬇, the quantity people are willing to buy goes up ⬆.

This happens ceteris paribus, a fancy Latin term meaning "all other things being equal."

Real-World Example: Matatu Fares

Think about your journey to school. If the matatu fare is 50 KSh, many students will take it. But what happens during a heavy downpour when the fare suddenly jumps to 100 KSh? Some students might decide to wait for the rain to stop, share a taxi with friends, or even walk if it's not too far. The quantity of "matatu rides demanded" goes down because the price went up!

The Demand Schedule & Curve

We can represent this relationship using a table (a schedule) and a graph (a curve). Let's imagine a local kiosk selling delicious smokies.

Demand Schedule for Smokies

+----------------+---------------------+
| Price (KSh)    | Quantity Demanded   |
| per Smokie     | (per hour)          |
+----------------+---------------------+
|      35        |        10           |
|      30        |        20           |
|      25        |        35           |
|      20        |        55           |
+----------------+---------------------+

If we plot this on a graph, we get the Demand Curve. It always slopes downwards from left to right.

Price (P)
  ^
  |
35|-   *
  |     \
30|-      *
  |        \
25|-         *
  |          \
20|-            *
  |              \ (D)
  +---------------------------> Quantity (Q)

Image Suggestion: A vibrant, colourful photo of a busy street-side kiosk in Nairobi. A vendor is selling popular snacks like smokies, samosas, and boiled eggs to a group of young people who are laughing and eating. The scene should feel energetic and authentically Kenyan.

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 quantity of a good or service that producers are willing and able to offer for sale at a given price.

The guiding rule here is the Law of Supply:

• When the price of a product goes up ⬆, the quantity producers are willing to sell goes up ⬆.
• When the price of a product goes down ⬇, the quantity producers are willing to sell goes down ⬇.

This makes sense, right? If you can sell your product for a higher price, you'll be more motivated to produce and sell more of it to make a better profit!

Real-World Example: Sukuma Wiki Farmers

A farmer in Limuru has a large shamba of sukuma wiki (kales). If the market price for a bunch is very low, say 5 KSh, she might only harvest a small amount to sell. It's barely worth the effort. But if news comes that the price has shot up to 20 KSh per bunch due to high demand in the city, she will work extra hard to harvest as much as possible to take to the market. The quantity supplied increases because the price went up!

The Supply Schedule & Curve

Just like with demand, we can create a schedule and a curve for supply. Let's use our sukuma wiki farmer.

Supply Schedule for Sukuma Wiki

+----------------+---------------------+
| Price (KSh)    | Quantity Supplied   |
| per Bunch      | (per day)           |
+----------------+---------------------+
|      20        |        100          |
|      15        |        70           |
|      10        |        40           |
|       5        |        10           |
+----------------+---------------------+

The Supply Curve is the opposite of the demand curve. It always slopes upwards from left to right.

Price (P)
  ^
  |          / (S)
20|-        *
  |       /
15|-      *
  |     /
10|-   *
  |   /
 5|- *
  |
  +---------------------------> Quantity (Q)

Part 3: The Handshake - Market Equilibrium

So, we have buyers who want low prices (demand) and sellers who want high prices (supply). How does the market decide on a final price? They meet in the middle! This meeting point is called Equilibrium.

Market Equilibrium is the state where the quantity demanded is exactly equal to the quantity supplied. The price at this point is the Equilibrium Price, and the quantity is the Equilibrium Quantity.

Let's combine our demand and supply curves to see this "handshake."

Price (P)
  ^
  |        / (S)
  |       / \
  |      /   \
  |     /     \
Pe|- - -* - - - - (D)
  |   / E \
  |  /     \
  | /       \
  +----------|---------------> Quantity (Q)
             Qe

The point (E) is where the magic happens! At price (Pe), the amount sellers want to sell is exactly the amount buyers want to buy (Qe). The market is "cleared" and everyone is happy. No shortage, no surplus.

Image Suggestion: A digital illustration showing two hands, one labeled 'Buyer' and the other 'Seller', coming together for a firm handshake. Behind them, a simple, clear graph shows the demand and supply curves intersecting at the point of the handshake. The style is modern and educational.

Let's Do Some Math!

In higher-level economics, we use simple equations to find the exact equilibrium point. Don't worry, it's just basic algebra! Assume the demand and supply for sodas in the school canteen are given by these functions:

• Demand Function: Qd = 50 - 2P (Where Qd is Quantity Demanded, P is Price)
• Supply Function: Qs = 5 + 3P (Where 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.
   50 - 2P = 5 + 3P

Step 2: Group the 'P' terms on one side and the numbers on the other.
   50 - 5 = 3P + 2P

Step 3: Simplify both sides.
   45 = 5P

Step 4: Solve for P (the Equilibrium Price).
   P = 45 / 5
   P = 9 KSh

Step 5: Now, find the Equilibrium Quantity (Q) by substituting P=9 into either equation. Let's use the demand equation.
   Qd = 50 - 2(9)
   Qd = 50 - 18
   Qd = 32

So, the equilibrium price for a soda is 9 KSh, and at this price, 32 sodas will be bought and sold.

What if the Price is Not Right?

• Surplus (Excess Supply): If the canteen manager sets the price too high, say at 12 KSh, suppliers will offer a lot of sodas, but students won't buy as many. There will be unsold sodas left on the shelf. This pressure will force the manager to lower the price back towards equilibrium.
• Shortage (Excess Demand): If the price is set too low, say at 5 KSh, everyone will want to buy a soda! They will sell out quickly, and many students will be left disappointed. This tells the manager that they can increase the price, moving it back up towards equilibrium.

You've Got This!

Congratulations! You now understand the fundamental forces that determine the prices of almost everything you see and buy. From the cost of a bus ticket on Safarilink to the price of your favourite meal, it's all a dance between demand and supply. Keep observing the world around you, and you'll see this powerful concept at work everywhere!