I wrote a post some time ago titled: 30 Basic Points on Economics.
Point #7 was:
“Demand causes supply.”
This is a bit like the chicken and the egg issue.
Does demand cause supply?
Or, does supply cause demand?
The short of it is that people do not produce, rather – people do not produce for long – without demand for that production.
Take the iPhone.
Apple invented it, and then Apple took a (relatively) small gamble on supplying the market with their new phone.
If their new phone had not sold, the supply of iPhone’s would have come to an abrupt halt.
No business is going to produce anything without the demand.
The alternative is not true, however.
Supply does not cause demand.
You can produce, and produce and produce – but you can not make someone want to buy more of your product or commodity.
Take cotton producers.
Growing and supplying the market with more and more cotton will not make people want to buy – overall – more cotton.
Conversely, people buying and using more cotton – all thing equal – will cause the market to supply more cotton.
So does demand cause supply? Or, does supply cause demand?
It’s evident: Demand causes supply.
