Please click the above "Supply and Demand Charts" link to see the problem and the solution.
The Law of Supply is seller focused. The graph shows that, as a business owner, you become more motivated when you can sell products, goods, and services at higher prices.
The Law of Demand is consumer focused. The graph shows that, as a consumer, you become more motivated when you can buy products, goods, and services at lower prices. Note that on the Law of Demand chart, even though the number of buyers increase to PRICE 2, sellers lose money. The bold horizontal line is the seller's minimum cost of doing business. Any sales at PRICE 2 means the company is draining its cash reserves or using credit to stay in business. This is where many businesses are today.
At PRICE 1, sellers are happy about the profit above the cost of doing business, but they are not able to expand at PRICE 1. If you are wondering how the slanted DEMAND curve is created, it represents the general behavior of consumers where they are always willing to buy at a perceived lower price.
So, as you can see, there must be a point where sellers and buyers agree on a certain price, favorable to both sellers and buyers.
The Solution graph communicates what sellers must do to grow. Sellers must find some way to expand at PRICE 1. This is where marketing comes in. Although the price may drop slightly lower than PRICE 1 as the number of consumers move to BUYERS 3, as long as PRICE 1 stays above the cost of doing business, the company is growing in a healthy way. Healthy means the company is able to hire more employees at fair wages and still sell to the public at affordable prices.
It is the movement from BUYERS 2 TO BUYERS 3 that businesses want to achieve. But if you are following these charts, you will have to come to an undeniable conclusion. In order for your business to move from BUYERS 2 to BUYERS 3, it comes at the expense of your competition. Meaning, your superior marketing plan is taking customers from other businesses.
If you are in an emerging industry such as home care services, many startups can make a lot of money because home services are in demand, driven by an aging population.
In contrast, for businesses such as auto repair, salon services, and accounting, you are in for the fight of your lives as your competitors temporarily lower prices, hire away your best workers, and take on debt to expand, manage account receivables or make payroll.
This is the world of business. Principles of economics do not teach that all businesses should have equal market share.
