Supply and Demand Supply and Demand Understanding the laws of supply and demand are central to understanding how the capitalist economy operates. Since we rely on market forces instead of government forces to distribute goods and services there must be some method for determining who gets the products that are produced. This is where supply and demand come in.
Demand is comprised of three things.
Desire Ability to pay Willingness to pay It is not enough to merely want or desire an item. One must show the ability to pay and then the willingness to pay. If all three conditions are not me then the demand is not real. This, by the way, is the purpose of advertising. While many may want a product it is quite another to be willing to pay.