The law of demand says The meaning of the definition, the basic concepts of supply and demand

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Such concepts as supply and demand are key in the relationship between producers and consumers. The magnitude of demand can tell the manufacturer the number of commodity items that the market needs. The amount of supply depends on the volume of goods that the manufacturer can offer at a given time and at a given price. The relationship between producers and consumers determines the law of supply and demand.

Definitions

Demand characterizes the number of items that buyers not only want, but can buy at different prices in a certain period.

The offer characterizes the number of commodity items that the manufacturer can offer the market at all possible prices in a certain period.

The sentence function is calleda law that shows the dependence of the volume of supply on external factors influencing it. Supply can be influenced by both price and non-price factors. Non-price factors include: the level of equipment of the enterprise, taxes, subsidies, subsidies, the existence of substitute goods, natural and geographical conditions, and others.

Types of supply and demand

Specialists identify a large number of types of demand, depending on various parameters. For example, depending on the intention of consumers, the following types are distinguished:

• hard demand for a product that does not tolerate the replacement of a product even with a homogeneous one;
• soft demand, which is formed by the buyer immediately before purchase and allows the replacement of goods with a homogeneous one;
• spontaneous demand arises from the consumer suddenly already in the store.

It is also customary to single out individual demand - this is when the demand of an individual consumer is determined, as well as the aggregate demand - the demand of the consumer market as a whole.

The offer is also divided into individual - the quantity of goods that a single manufacturer can offer. Aggregate supply characterizes the total supply of producers in the market.

The law of demand

The law of demand states that there is a direct proportionality between the price of a product and the consumer's desire to purchase a product. The higher the cost of a commodity item, the lower the demand for it, and, conversely, the lower the cost, the higher the demand. Direct proportionality between price and quantity demandeddirectly related to concepts such as income and substitution effects. When the price goes down, the consumer can afford to buy more items and feel better off, a phenomenon called the income effect. Also, when the price of a product decreases, the consumer, comparing a more favorable price with others, tries to purchase this product in larger quantities, replacing with it those commodity items for which the price has not changed - this is called the substitution effect.

The law of demand states that the volume of demand decreases or increases depending on the increase or decrease in the price of a heading, respectively.

For example, consumers create demand for a product worth 500 rubles, at some point the manufacturer, seeing high demand, raises the price to 600 rubles. At this point, the volume of demand decreases, although the supply has increased.

It is important to remember that the desire of the consumer alone is not enough for the presence of demand, the consumer must also be able to purchase the desired product. When both desire and opportunity come together, there is demand.

The desire of a consumer to buy a Bentley Continental does not mean that there is a demand for this car, if the consumer does not have a high income to buy this car. Even if the consumer comes to the salon for a consultation every day, the demand will not change.

The law of demand states the existence of these mechanisms that affect the market of relations between producers and consumers:

• the law of diminishing marginalutility;
• income and substitution effects.

The income and substitution effects are discussed above. The law of demand states that the concept of diminishing marginal utility is proven by the fact that each subsequent consumption of an additional unit of a good brings the consumer a lower level of satisfaction, and therefore he will only be willing to buy it at a lower price.

Restrictions

The law of demand is limited:

• if there is a hype for the product, which is caused by the expectation of consumers to increase prices;
• if an expensive and unique product is considered, as well as a product, buying which, the consumer wants to make it a store of value (antiques);
• if consumers have shifted their attention to newer and more modern products.

All the factors presented above are divided into price and non-price factors that limit the law of demand.

The law of supply and demand

The law of supply and demand says that there is a direct proportionality between supply and demand. Looking at the intersecting lines of supply and demand on the graph, it becomes clear: the lower the price per unit of goods, the more consumers want to buy it, but the less the consumer is willing to sell the product. The graphs of supply and demand lines have a point of intersection, it shows the equilibrium price.

Based on this, the law of demand states that sellers will offer more goods at a higher price. When the price goes down, it will also go down.sentence. It is the equilibrium price (or the point of intersection of supply and demand schedules) that shows at what price and in what quantity the goods will be presented. These indicators will satisfy both parties: both producers and consumers.

Demand for labor

The law of demand for labor says about the dependence, which consists in how much labor resources a manufacturer is ready to hire at a certain wage rate.

The amount of demand for labor depends on the following factors:

• level of labor productivity;
• the need for the amount of labor resources to meet the needs of production.

There is also a direct proportionality between wages and the demand for labor. The law of demand says: the lower the wage, the higher the demand.