How would you determine whether your marketplace startup is demand or supply-constrained?
Supply has a direct relationship with the price of a product or service, which means that if the price rises, its supply will also increase. Conversely, If the price falls, then the supply will also decrease. Demand has an indirect relationship with the price of a product or service. If the price drops, demand will rise and vice-versa.
Nowadays, people have become very selective concerning what they use, wear or carry. They are very conscious about what to purchase and what not to buy? A small change in the prices or, say, a certain commodity’s availability drastically affects people. A small disequilibrium in these two (demand and supply) will cause the whole of the economy to suffer.
- Demand can be referred to as how much the buyer desires (quantity) a service or product. buyer desires (quantity) of a service or product. The quantity demanded will be the amount of that product that people are willing to purchase at a certain price. The relationship between the quantity demanded and the price is called the demand relationship.
- Supply represents how much the market can offer a certain product or service. The quantity supplied can be referred to as the amount of certain good producers they provide that is received recklessly for a certain price.
Marketplaces are often supply-constrained.
At a very basic level:
- Demand-constrained system (or marketplace) is one where the level of transactions/turnover in the system are what they are because of the level of aggregate demand is what it is – meaning if there were more customers interested in concluding transactions (pushing up demand and buying) then turnover and volume in the marketplace will increase (regardless of price increases)
- More than adequate number of suppliers to address the available demand from buyers (Taskrabbit with lots of service providers waiting)
- Not enough buyers
- Supply-constrained system (or marketplace) is one where the level of transactions in the system are what they are because of the level of aggregate supply is what it is – meaning if there were more suppliers of goods and services (increasing supply) then turnover and volume in the marketplace will increase (regardless of price increases)
- Insufficient no of suppliers (e.g. you and many others want to order a Uber/Lyft vehicle but none are available)
- Plenty of buyers
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