SUPPLY AND DEMAND

ABSTRACT

While market structures can be quite complex, it's crucial to understand that they are built upon specific principles, rules, and quantities. The fundamental ideas that underpin this elaborate system are supply and demand. In this work I will try to elaborate on the definitions of supply and demand, how they come into existence, and the key factors that significantly impact them.

Keywords: supply, economy, demand, competition, market equilibrium.

Demand and supply are the basic concepts in microeconomics. They form the basis of the market pricing mechanism. Here are the key factors regarding supply and demand:

Demand is understood as a customer's desire to purchase a product at a price he desires.

Supply, on the other hand, refers to a specific number of products that manufacturers are willing to sell to customers for a specific period of time and at a specific price.

Both concepts can lead to a situation where quantity and price are the same, which can lead to the termination or non-fulfillment of a sales transaction.

What is demand?

In our previous discussion, we have discussed the concept of demand, which refers to the willingness of a customer to buy a particular product at a particular price. This factor plays a crucial role in determining market prices.

Demand quantity is the quantity of a product that a buyer is willing and able to purchase from a consumer at a price that is favorable to him.

The demand price is the optimal price at which the buyer is ready to purchase the product on the market.

It is only necessary to remember that demand can change under different aspects, such as the price of the consumer, his tastes, expectations.

Also, demand can increase or decrease.

What is supply?

Supply is the willingness of a producer to produce and sell his products to buyers at certain prices and at certain times.

If a producer earns a substantial income from each unit of goods sold, the supply of goods will gradually increase due to high profit margins.

The supply price is the minimum price at which a producer can sell goods or services.

Supply is affected by the following conditions:

- Fluctuations in the prices of goods and services.

- Advances in production technology.

- Changes in taxes and subsidies.

- Changes in the prices of substitute goods.

Law of Supply and Demand.

The law of supply and demand is one of the important fundamentals in microeconomics as it traces the relationship between the price of a commodity and the quantity that sellers are willing to offer and buyers are willing to purchase.

According to the law of demand is, roughly speaking, the power that pushes the customer to purchase some good or service. Demand is directly related to price: the higher it is, the lower the demand itself.

Supply, on the other hand, demonstrates the amount of goods and services that consumers are able and willing to sell at a certain price. Therefore, the law of supply states: the higher the price, the higher the supply.

Demand is made up of consumer needs and supply is made up of producers. They are interrelated with each other.

Market is the place where producers and consumers meet. Its main function is exchange. The market operates on the principle of “the greater the demand, the lower the supply”. However, in some cases, the supply of a certain commodity may increase and producers have to reduce the price of the product.

Supply and demand functions include:

- increasing production in proportion;

- regulating value in the market;

- reflecting social relations.

Elasticity of demand and supply.

Demand and supply can be either elastic or inelastic.

The elasticity of demand reflects how much the quantity of a good will change in response to a change in price.

Types of elasticity of demand:

Demand is considered elastic if the price of a product has changed a lot, and inelastic if the price of a good has not changed too much. Of course, all of these are expressed as percentages.

The elasticity of supply is a measure of the change in the quantity of a good offered in the market in response to a change in price.

Types of elasticity of supply:

Elastic and inelastic supply are distinguished by the value of price elasticity coefficient.

In case of elastic supply, a small change in price leads to a significant change in supply in the same direction.

That is, when price increases, supply increases significantly and when price decreases, supply decreases significantly. Goods whose production can be easily increased or decreased according to demand have elasticity of supply.

Examples of such goods are agricultural products, mass demand goods with short production periods and others.

Market equilibrium of supply and demand.

Market equilibrium is reached when the quantity of goods demanded by consumers equals the quantity of goods offered by producers.

There are three types of market equilibrium in the economy: instantaneous, short-term and long-term.

­- Instantaneous - when the quantity of factors of production used remains constant.

- Short-term - when there is a small change in supply, potentially leading to an increase in the use of at least one factor of production.

- Long-term - when there is a significant change in supply, potentially leading to a change in the quantity of all factors of production.

Economies around the world operate on the principle of free market regulation, that is, when the market is free from government interference.

A market economy is a model through which goods and services are exchanged between buyers and producers on a voluntary basis, taking into account the laws of supply and demand.

Market equilibrium can only be achieved if a golden mean is found. If producers produce a huge amount of goods and sell them at a high price, then buyers will buy it in smaller quantities and as a consequence there is overproduction. If consumers will buy goods at low prices and in large quantities, it will lead to a reduction in the production of goods and services by producers, resulting in shortages. Such a situation is undesirable. Therefore, it is imperative to strike a balance where producers can produce as much as consumers can buy. To achieve this balance, the government has taken measures such as reducing income tax and providing incentives and subsidies to troubled industries.

In a market economy, prices and quantities of goods are determined by supply and demand. Market equilibrium occurs only when demand equals supply. Consumers will usually prefer to buy at a lower price than at a higher price.

References:

1. Pavlov A.K. “Market Economy. Demand and supply”. (Scientific article). : https://infourok.ru/pavlov-a-k-rynochnaya-ekonomika-spros-i-predlozhenie-nauchnaya-statya-5657418.html (дата обращения: 20.03.2025)
2. Law of supply and demand,Source - Skysmart Online School: https://skysmart.ru/articles/obshestvoznanie/zakon-sprosa-i-predlojeniya (дата обращения: 20.03.2023)
3. Supply and demand: basic concepts: https://timeweb.com/ru/community/articles/spros-i-predlozhenie-osnovy-ponyatiy (дата обращения: 20.03.2023)
4. What is the law of supply and demand in economics with examples: https://www.calltouch.ru/blog/glossary/zakon-sprosa-i-predlozheniya/ (дата обращения: 20.03.2023)