It is a business and economic fundamental that a market is considered to be in equilibrium if the forces of demand balance with the forces of supply. The two most important concepts are quantity and price. Quantity refers to the number of commodities that are being sold and bought. The price is simply the value of a commodity. In an ideal market, suppliers deliver their commodities at a price that the buyers will accept. The important point is that the price and the quantity of the commodity supplied and demanded in this type of market should be the same. That is when it is said that the market is in equilibrium and thus perfect (Pershing 12).
On the other hand, in reality, markets are defective which often leads to a disparity linking the availing of commodities and their subsequent purchase. Often there are instances in which many commodities are supplied to the market at a value which the buyers cannot clear the stock. This may cause what is referred to as active deliberations where the market is shaped over time. Alternatively, the quantity demanded of a commodity may be over and above the volume supplied. In this scenario, the price will rise while the commodity becomes scarce.
Basically, demand refers to the number of commodities and their prices that the buyers in the market are willing and able to purchase at any particular point in time. This means that the supplier or rather the seller has to meet the required orders and sell them at a price asked for by the buyers. This concept is inferred from the aspect of time, that is, fluctuates from time to time. For demand to match the supply then the suppliers must have the capacity to provide what is needed.
Capacity, with regard to demand, means the ability of the suppliers to avail the number of commodities at the prices set by the buyers. The ability of the sellers to meet these requirements is dependent on several factors. For example, some commodities are fragile, perishable, or simply out of reach. There is also a hidden constraint of time whereby getting the commodities to the market may take longer than expected causing the demand to rise and hence the prices.
Another capacity determinant is the level of the human resource in both the manufacturing and distribution stages of any given commodity. The smaller the number of workers in the manufacturing stage and the lesser their skills, the poorer the quality and the smaller the quantity of the commodities they produce notwithstanding the technology they employ. Capital for the sellers to purchase and avail the commodities may also affect the capacity to meet the market demand.
A mismatch can be corrected either by altering the capacity to suit the demand or by changing the demand to equal the capacity. The latter can be achieved by putting in place a demand management strategy. One of the strategies involves the firms altering the prices of the commodities to make the most of their income. Another strategy that firms use is to make their production activities match the fluctuations in demand such that when the demand is high, they increase their production (Brown, Blackmon and Cousins 186).
Alternatively, the firms can maintain a regular quantity of commodities that they supply to the market. With this, there is a steady quantity supplied regardless of the demanded quantity. Furthermore, the firms can always strive to equate the quantities demanded with the supplied. This is referred to as trail demand because the firms follow the demand pattern by supplying at that level.
Brown, Steve, Blackmon Kate and Cousins Paul. Operations management: policy, practice and performance improvement. New York: Butterworth-Heinemann, 2001.
Pershing, Janet L. Mismatches between supply and demand. Minneapolis: Metropolitan Council of the Twin Cities Area, 2009.