Demand and Supply in Islam

In analyzing complex things, experts usually do simplification. A building engineer for example, when going to build a house he starts by making technical drawings. The image itself is a simplification, because the design of a three-dimensional building is outlined in a two-dimensional drawing. But with that simplification, an engineer can already make technical calculations of buildings, and the costs required.

For economists, simplification is carried out by limiting a problem, so he tries to limit the problem to only one that is influenced by one or two factors, while other factors are held constant. That way, One model can be constructed based on that simplification earlier. The abstraction was carried out using the term ceteris paribus. This means that if an expert is analyzing the economy it is very complex, concerning the relationship between humans and one another. It is not easy for economists to estimate human behavior based on feelings, different motivations and tastes. That's why economists simplify things that are not important in order to understand the workings of complex economic mechanisms.

Similarly, attempts to analyze the price system, So the experts approach this problem by simplifying the elements that make up the price. They limit the elements that affect the price formation mechanism to only two factors, that is: demand and supply.

Law of Demand

The demand for goods or services is defined as: the quantity of a good or service that people are willing to buy at various price levels in a given period of time.

In the definition above, the active voice is used: people are willing to buy it to emphasize the consumption activities that are actively carried out by the consumer society, which is affected by the price level. While the word ‘willing’ gets its own emphasis. It contains meaning, that consumers have a desire to buy an item or service (In other words, consumers have a preference for these goods or services), at the same time he also has the ability, i.e. money or income, to buy, in order to fulfill his wish. This ability is often referred to as purchasing power. So, the concept of demand for goods and services only pays attention to consumers who have preferences and purchasing power at the same time.

Assumptions

In the analysis of demand for a good or service,'examined the factors that influence the size of the quantity or amount of goods/services demanded by consumers'. There are many factors that meme-‘ affect the demand for an item. The most important thing is the price of the item itself. other than that, Factors other than the price of the good also affect the demand for that good. An example is community income, the price of other goods, as well as taste. We will discuss this issue in more detail later in this chapter.

In general, it is known that the higher the price of an, the lower the demand for the product. The statement above explains the relationship between the demand for an item and the price of the item, otherwise known as the 'law of demand'.

Factors Affecting Demand

As stated before, It is known that the demand for an item is influenced by other factors besides price. We will discuss these factors one by one: ‘

a. Income
The higher one's income, the demand for an item will increase, even if the price of the goods does not change.

b. Prices of other related items
Another influential factor is the price of other items related to the item being analyzed. Demand for pure milk will increase as the price of powdered milk rises.

c .Taste
Another thing that influences demand is taste. Example, Ink for sports shoes with thin soles (like Bruce Lee's shoes) now it's getting lower, on the other hand, sports shoes with thick soles (like Nike, Adidas, etc) more increasing. It's mainly because there's a change in taste.

d .Total Population
The larger the population in an area, the more demand for a product in the area. The demand for Indonesian DJ rice every year always increases. Of course, because the population of Indonesia is getting more and more, so that the amount of rice needed to meet their needs is increasing. This is reflected in the ever-increasing demand for rice.

Islamic Demand Theory

The important thing to note is how the economic theory developed by the West limits its analysis in the short term, namely to the extent that humans fulfill their desires. No analysis includes moral and social values. The analysis is only limited to market variables such as price, income and so on. Other variables were not included, such as moral value variables such as simplicity, justice, the attitude of putting others first, etc. Here we will discuss how Islam regulates consumption and how this affects the law of demand that we have studied above.

In Islamic economics, every economic decision of a human being is inseparable from moral and religious values ​​because every activity is always connected to the sharia. The Qur'an calls economics with the term iqtishdd (savings, the economy), which literally means 'middle'’ or 'moderate'. A Muslim is prohibited from doing extravagant (see al-Israa verse 26-27). A Muslim is asked to take a moderate attitude in acquiring and using resources. He can not isréf (royal, exaggerated), but also stingy is forbidden (bukhl).

Read Also :

 

• Difference between Islamic and Conventional Economic Systems
• The Right to Receive Zakat
• Characteristics of Islamic Economics
• Basic Principles of Islamic Economics
• Understanding Islamic Economics
• Doa Nurbuat

 

The post Demand and Supply in Islam along with the Law of Supply and Influencing Factors appeared first on this page.