The fundamentals of supply and demand are the core of retail product availability and pricing. When you find the balance, or equilibrium curve, of the supply, demand and price of a product, it reduces the risk of having excess product on the shelf or a shortage of product that results in unsatisfied customer demands. You need to understand how each contributing factor of supply and demand affects the equilibrium curve.
The equilibrium curve indicates the price at which the supply and demand for your product meet. Any change in the price, supply or demand can affect the entire curve. When you chart your supply and demand lines based on price, the equilibrium curve is the price where the two lines intersect.
An increase in the demand without an increase in supply raises the equilibrium price and quantity of your product. The equilibrium demand curve shifts to the right, intersecting with the supply line at a higher price. In most cases, an increase in demand causes a reduction in price with an increased supply, the lack of corresponding increase in supply will cause the prices to increase.
If demand for your product decreases without a change in the supply curve, you will have a surplus of product on the shelf. A reduction in demand is usually followed by a reduction in supply and an increase in price. When the supply is not reduced in response to the demand reduction, the excess product on the shelf drives the prices down.
A slight fluctuation in price can have a dramatic effect on the demand curve. When the demand curve shifts, change the supply in response to maintain a balance without excess products on the shelf or significant shortages. Monitor the demand and pricing regularly to help ensure that your product supply remains balanced to meet the needs of your customers.
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