International Journal of Research and Innovation in Social Science (IJRISS) |Volume IV, Issue XII, December 2020|ISSN 2454-6186 www.rsisinternational.org Page 71 Managerial Economics- Demand and Supply Kwesi A. Sakyi ZCAS University, P.O. Box 35243, Dedan Kimathi Road, Lusaka, Zambia Abstract: In this article, the author explores in a short communication the concepts of demand and supply in relationship to the price mechanism as well as the need for Keynesian market intervention. He further explores the philosophical underpinnings of the idea of the welfare state with regard to merit goods and general wellbeing of citizens. Keywords: eleemosynary economics, revealed preference, elasticity, opportunity cost, demand, supply, scarcity, choice, human behaviour, wants needs, price mechanism, equilibrium, Pareto optimality, welfare economics, buffer stock, price floor I. INTRODUCTION he word Economics is derived from the two Greek words OEIKOS and NEMOS which mean house management. From that basic definition of household management in the microcosm, the definition has expanded to mean the management of the scarce resources of firms, corporations, entities, and nations. Economics is said to be hinged on the study of scarcity and choice. Lionel Robbins once said that Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternate uses. This definition is loaded as Economics is said to be a science about human behaviour which is hard to predict because human beings are said to be capricious, volatile, mercurial, kaleidoscopic and unpredictable in their behaviour. Science is any organised body of knowledge which is logical, internally and externally consistent and has predictive ability and explanatory powers to explain phenomena through simplified models. Ends in Economics refer to human wants and needs though wants are luxuries and needs are necessities of life. Human needs are unlimited relative to the means for satisfying them so the issue of choice arises by having a scale of preference which is a list of our immediate needs ordered according to rank order of importance. Once a choice is made, some other alternate choice has to be sacrificed or foregone. The foregone alternative is known as the real cost or opportunity cost. This is different from the money or nominal cost of the item chosen. The real cost or opportunity cost refers to the real alternative choice foregone. Let us say Maria has 10 dollars which can buy either a novel or a meal but not both and Maria chooses to eat a meal; then she cannot afford to have the novel. The opportunity or real cost of the meal she chose to have is the novel she gave up for the meal. This choice and scarcity issue confronts every economic entity, be they individuals, firms, nations, MNCs and Conglomerates. II. MEANING OF DEMAND In Economics, demand is revealed preference of our needs given an array of prices for a given commodity. Hayes (n.d.) stated that demand is how much quantity of a product or service that consumers or buyers are willing and able to buy at a given price at a given time. In Economics, demand means effective demand or demand backed by ability to purchase and not a mere desire or wish. The demand schedule shows the relationship between price and quantity demanded which is inverse or a negative relationship expressed by the equation: Q D = a-bP where Q D is quantity demanded, a is the intercept or constant, b is the slope or propensity to demand, P is price The market demand schedule is a horizontal summation of all individual schedules and the law of demand holds true for both individuals and the market demand schedules as both schedules when plotted with price on the Y- axis and quantity on the X-axis, show inverse or negative or indirect relationship between price and quantity demanded. The law of demand states that ceteris paribus (all things being equal), the lower the price the greater the quantity demanded and the higher the price, the lower the quantity demanded because when the price rises, consumers’ opportunity cost is greater as their utility area falls affecting their welfare. Note that a change in own price of a good brings about a movement along the same demand curve called a change in quantity demanded. On the other hand, a whole bodily shift of the entire demand curve either outwards to the right or inward to the left is called a shift in demand and are caused by factors other than own price change. The abnormal demand curve which behaves like a supply curve is caused by speculation or fear of future rise in price (inflation), lack of consumer knowledge and belief that higher price connotes superior quality, effect of adverts, Veblen effect or snob appeal or conspicuous consumption, keeping up with the Joneses or being on the band wagon, and consumer ignorance, among other factors. III. MEANING OF SUPPLY Supply in Economics means the quantity of goods and services that suppliers and producers are willing and able to T