The interaction of market demand and market supply. Market equilibrium

A Market is called competitive form of linking business entities. A market mechanism is the mechanism of mutual relations and actions of the main elements of the market, which include demand, supply, price, competition, the basic elements of the laws of the market. The mechanism of the market satisfies only those needs of society that are expressed through demand. The interaction of market demand and market supply is the main component of relations between buyers and sellers and between consumers and producers.

What is the demand?

Demand is called the effective demand of a certain product or service.

The Value of demand is the number of products and services that buyers are willing to buy in this length of time, in this place and at fixed prices.

The Need in any good implies the desire to possess goods. Demand implies not only the desire, but also the opportunity to purchase at the prices established in the market.

Types of demand and predlojeniya:

• Rynochnye;
• Individually;
• Proizvodstvennyi;
• Potrebitelski.

Supply and Demand for goods are determined by many factors, both price and non-price. Consider them all.

Factors that influence demand:

• Advertising;
• The availability of products;
• Usefulness of the product;
• Fashion and preferences;
• Consumer expectations;
• Income;
• Weather conditions;
• The political situation in the state;
• Change preferences;
• Price, which is mounted on interchangeable products;
• Population.

Price – big as the price that the buyer can pay for products or services rendered.

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The Demand can be exogenous and endogenous. The first is this kind of demand, influenced by external factors or government intervention. Also called endogenous domestic demand, and its peculiarity is that it is formed inside the society.

Demand is the request of existing or potential customers, and also groups of consumers in accordance with their funds for a specific purchase. The need for different products is a reflection of market demand.

The nature of the law of demand is simple. In other words, the higher the price of the product, the less consumers can afford, and Vice versa (assuming the same amount of money). In practice, however, a bit more complicated: first, the buyer may replace the product (called product a substitute), and secondly, it can add money to buy a certain number of products.

Law of demand

The Law of supply and demand is an economic law, which establishes how much depends on demand volume and supply volume of production from their prices. Alfred Marshall finally formulated this law in 1890.

When the price of certain products increases, but the other parameters remain the same as before, demand will begin to meet on a smaller number of products.

The Interaction of supply and demand in the market sets the price for products.

The Elasticity of demand - what is it?

It refers to the concept index, which expresses the fluctuations of demand in the aggregate. These fluctuations are often caused by a change in the pricing policy of a product or service. Elastic demand – one that was formed with the proviso that the volume change (as a percentage) is greater than lower prices.

In that case, if the rate of decline in prices and increase in demand (in percentage) is the same, in other words, the growth in demand is only able to compensate for the drop in prices, the elasticity is equal to one.

In another case, if the price reduction exceeds the amount of demand-the demand is inelastic.

The conclusion: elasticity of demand – is an economic term to characterize the sensitivity of consumers to changes in prices of products. This phenomenon also depends on the income of the population. Hence, the classification of elasticity: price and income.

The Reaction of buyers on the variability of prices is strong, neutral and weak, each of which creates a particular kind of demand: elastic, inelastic, and completely inelastic.

There are a number of products with different price elasticity. Commodities such as bread and salt are the most successful examples of inelastic demand. Here neither the increase nor the decrease in prices of this product do not affect the number of consumers.

The Sellers and manufacturers use the concept of elasticity to their advantage. If the factor is high enough, they will go to the sharp decline in prices to increase sales. Accordingly, the profits they are getting more than if prices were higher.

For products having a low level of elasticity, it is impossible to reduce prices and increase output. In this case, there is no economic benefit.

When on the market there are a large number of sellers, demand for any product is elastic. Therefore, in case of higher prices from some buyers purchase the goods of others.

The demand Curve

The demand Curve is designed to show the number of products thatit is possible to sell in a given time at a given price. The higher the level of demand elasticity, the higher may be the price.

The demand Curve is a graph which illustrates the relationship between the number of consumers willing to buy the product, and the price fixed on it.

The demand Curve is depicted as the total for all buyers, but considering each separately. Sometimes this graph is represented not by a curve but, for example, in the form of straight lines. It depends on the situation on the market.

It Often happens that the demand curve is considered in combination with the supply curve: it gives the full picture. Chart is able to fully describe the situation on the market. The curve of supply and demand when the intersection yields the market equilibrium price. This, in turn, regulates and stabilizes the relationship between buyers and sellers.

What is the offer?

The Interaction of supply and demand – it is an integral process of the economy, which is typical for all developing countries.

It is Impossible to objectively analyze the market mechanism without an offer. It harakterizuet economic situation on the market by sellers, not buyers.

Range is the set of goods and services in the market, which are sold at this price.

The Size of the proposal is considered to be the number of products and services that sellers offer at a given time at a given price, but quantity supplied is not always equal to the volume of production or sales.

The bid Price is the approximate minimum price at which a seller is willing to give their goods.

The Economic situation on the market can be described by the volume and structure of the sentence. They also affect the production and pricing policy. All the products are on the shelves of sellers, and even those still in the path, refer to the product offering.

The Volume of supply is directly connected with the price. In that case, if the price is low, sold a smaller portion of the goods (a large part remains in storage), if the price reaches the maximum level, then production appears considerably more. In this case, in the course are even defective products.

There are three intervals, which examines the proposal. Before the year – short-term, from one year to five – medium-term, and over five years – long term.

The Volume of supply is the quantity that wish to sell sellers per unit of time.

The Law of supply is: the volume of goods increases when prices rise and also fall, if the price is reduced.

The Change of demand and supply occurs due to many factors. In the first place – it is a change in the price of the product or the one that can replace her. It is also influenced by the volume and production costs.

Have suggestions, like demand, there are non-price factors. These include:

• The appearance on the market of new firms;
• Natural disasters;
• War or other political action;
• Production costs;
• Predictable economic expectations;
• Change in market prices;
• Modernization.

The Huge impact of technological progress. It reduces production costs, accelerates and simplifies the work.

The Proposal is an economic phenomenon in which the seller wants to realize their goods on the market at fixed prices. On it, as well as demand affect price and non-price factors. Among them:

• Market presence of substitute products;
• Goods-complements (complements);
• New technologies
• Taxes and subsidies;
• The amount of used resources;
• The availability of raw materials;
• Weather conditions;
• The size of the market;
• The expectation of a product/service.

Law of supply

The Volume of supply increases with prices. This law is valid only in case if with the price of increasing the volume of production of the goods the seller (manufacturer) is starting to get more profits. The real economic picture is complicated, however, these trends are inherent in it.

The Proposal determines demand, and demand determines supply. So the thought of Karl Marx. Today, his theory is also relevant. The proposal is able to generate demand through a range of products and prices that are set. In turn, demand is determined by the volume and structure of commodity supply. This is because in the course are those products that are most consumed.

The Process by which this product is installed this price that can satisfy the buyer and the seller – the interaction of demand and supply.

Elasticity of supply

This figure, which reproduces a change of offers in aggregate, occurring in connection with the increase in prices. In that case, if the increase in supply is more price growth, it is characterized as elastic (supply elasticity greater than one). If the growth of supply equal higher prices, the proposal is called unit, respectively, the same figures. And also, if increase in supply is less than the increase in prices, in this case, the proposal is not elastic (supply elasticity less than unity).

Will offer elastic oron the contrary, depends on some factors:

• Features production of the product;
• The duration of storage;
• Time spent on making;
• Time factor.

The Interaction of supply and demand helps to set the right price for the products, thereby determines the relationship between consumer and producer.

Offer can change:

• Market prices (in particular for commodities-substitutes);
• Taxes;
• Cost of production;
• The tastes of consumers;
• Scientific and technological achievement;
• The number of producers;
• Expectations manufacturers.

The Interaction of market demand and market supply – the process by which equilibrium price that satisfies both buyers and sellers.

Supply Curve

The supply Curve describes the quantity which is sold at different prices, but at this point in time.

Opening sentence portrays the relationship of market prices to the number of products that are offered by the manufacturer. More than anything this curve affect the cost of production. This allows to produce more output to increase profits. Another factor that affects the timetable for the proposals – technological and scientific progress. Advanced production technologies enable you to work faster and spend less raw material, and human resources.

Graph of supply and demand is needed in order to fully depict the situation on the market. It helps to understand pricing policy, to establish the necessary production capacity and to make the best plan for producers and sellers.

In order to depict the equation of supply and demand, the required linear function. You need to know two points to build them. For its calculation is depicted the curve of demand and supply and their dependence on prices and quantities of products. Point at the intersection of the graphs is the solution. It is called the equilibrium point.

The Interaction of market demand and market supply & ndash; is an economic process that generates the formation of market prices that satisfies both the buyer and the seller.

Factors of demand and supply are those that affect their value. The main indicators for both – the price of goods. However, there are other non-price factors.

Market equilibrium is called a phenomenon in which the same level are such factors as supply and demand. Equilibrium price – is the price at which these parameters are the same. In other words, the price at which the manufacturer offers a certain quantity of goods, and buyers all get it. This phenomenon in the economy occurs very rarely, and at this time supply is equal to demand.

How they were willing to take the law?

For the First time in the fourteenth century, the subject was raised of the interaction of supply and demand. Historian-Muslim, as well as a philosopher and social thinker of the Arab countries came to the conclusion that the exclusive product, which is also in great demand, the higher the price for it. Was the name of Ibnam Khaldun a philosopher, he became the founder of the law of supply and demand.

Later his idea was developed in the sixteenth century in the works of the Spanish economist Juan de Matienzo. He described the theory of subjective value of goods, which leads to the distinction between the concepts of supply and demand. He also introduced the concept of “competition” to describe bidding and competition in the markets. In his numerous works highlighted several factors influencing the pricing.

How to find levels of supply and demand

First we need to establish the current price. The demand levels are if you descend the price ladder, and the levels offers, on the contrary, when lifting it. Next you need to determine the strong and rapid price movement. For demand – rapid growth, to offer – decrease. Following is a source of traffic. Have demand it from below, the suggestions from above. At the end with the level lines at the top and bottom of the graph.

Once the levels are set, the manufacturer can freely enter the market and not be afraid of the onslaught from competitors or ruin.

The Interaction of market demand and market supply helps to set prices, regulate the situation on the market, and even affect the state of the economy in the country.

In today's economy consumers tend to buy more products at competitive prices. And on the other side of the fence is the manufacturer, who also wants the best price to sell their goods. Thanks to the researchers and economists who study demand and supply, the market is able to function normally. To achieve balance, they analyze a huge number of factors that in varying degrees, affect these processes.