GearCity Economics 101:
Supply and Demand

One of the fundamental concepts of economics is supply and demand. 
With this concept you can maximize the profits of your company by creating equilibriums.

The best way to explain Supply and Demand is with a graph:

The X-axis is the quantity of the product, and the Y-axis is the sales price.

The red line is demand. 


The pricing of your goods effects demand.

When the price is high, the demand for units is low.
And when the price is low, the demand for units is high.



Now let's look at supply. The supply curve overlaps the demand curve.

If you don't have enough units compared to the demand, you could risk losing sales. 
But if you have too many units, and not enough demand, you are wasting money producing the extra units.

For maximum profits and effectiveness you need the supply and demand curve to be at same equal point in relation to the price. This is equilibrium.
 

Beyond adjusting price, actions you take at a company can shift these curves left and right. For example, to shift the demand curve right, you can open new branches. This will cause the entire quantity demanded to increase at the same price level.

Let's look at some in game examples of Supply and Demand, and actions you should take.


This is a common early game situation.

Your factory can produce hundreds of units, but you’re only selling a handful.





If you lower prices, your demand would increase. But this action will hurt your margins because of rising production costs.

Instead, in this situation you should open a new branch, thus shifting the curve to the right, and creating more demand at this price.
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Let's look at another situtation.

Here is another early game situation you can find yourself in. Your factory is at 100% capacity, and you’re missing sales.


In this case, your Supply and Demand graph looks like this. Here you have two choices. You can either shift the demand curve left by closing branches, or, you can increase the price of the vehicle. The better choice in this case is to increase the price of the vehicle. By doing this, you will lower the demand of the vehicle while increasing the amount of money you make from each sale. When the demand and supply is equal, you have hit equilibrium.

Here are a few other tips for the game. 
-Always try to keep production at full capacity. We'll explain this one in more details in the Unit Costs video.
-When you need to increase sales a small amount, reduce the price, but keep aware the material and manufacturing costs of the vehicle. You don't want to be losing money on each sale. 
-When you need to increase sales by a large amount, expand to new territories.
-If you have missing sales, you should increase production.
-If you have missing sales, you can reduce demand by increasing price.
-If you have missing sales, you can reduce demand by closing branches.