SUPPLY AND DEMAND
Supply and demand is a key principle in economics and is especially important in right-wing economic systems such as laissez-faire capitalism and free market economies. In any economy there are producers and consumers. Producers are the individuals and companies who supply goods and services for others to purchase. Consumers are the individuals and companies who purchase those goods and services. In a government-controlled economy, such as a command economy, the actions of producers and consumers are heavily regulated and controlled by central planners. However, laissez-faire capitalism holds that the government should leave producers and consumers alone and instead allow the forces of supply and demand to control the economy. For instance, in his book ‘Wealth of Nations’ Adam Smith introduced the idea of the ‘invisible hand’. Simply put, the ‘invisible hand’ is the idea that the market forces of supply and demand should drive the economy of a country. Producers should be free to produce any good or service they want and consumers should be allowed to purchase any good or service. The success of a particular good or service would therefore be conditional on its ability to appeal to a large base of consumers. In turn, supply and demand would also be responsible for setting the price of any given good or service. For example, if a product was in short supply, but was in heavy demand, the price of the product would be at its highest. The reverse situation would see the price of the product plummet to its lowest possible price. When the supply and demand of a particular good or services are at the same level it is referred to as equilibrium. As well, supply and demand would also be responsible for setting the wages of workers. If there are many people with the same skillset and only a few jobs, then the wage that a worker could demand would be quite low. Whereas, if the worker has a specialized skillset that not many other possess, then he or she could demand a higher wage. Therefore, laissez-faire capitalists argue that limiting the government and allowing the forces of supply and demand to control the economy is the best means of setting appropriate prices and wages for the producers and consumers in society.