How supply and demand increase

Demand in the market means the desire and ability of buyers to purchase goods at the price indicated by the seller. Thus, the buyer, in an effort to save money, will want to purchase the product at a lower price than the one for which it is sold. The seller, in turn, offers the goods at a more favorable cost to him, and therefore he sets a high price on him.

Instruction manual

1

The influence of the price of a commodity and the demand for it is explained by the income effect and the substitution effect. The income effect is that with a limited amount of own funds, it is much easier to purchase a product at a low price, because the buyer does not have to refuse to buy other goods.

2

Therefore, buying a product necessary for a consumer at an acceptable cost for him, he does not spend a significant part of the money, and thus saves his income. It is worth noting that it is precisely the limited income that dictates the economic logic: consumers seek to maximize their cash and accumulate it. Consequently, the magnitude of demand also depends on the size of income: the more money, the buyer can purchase more goods at high prices.

3

In general, the described behavior, in which the buyer reduces his consumption, spending money, stops purchasing goods, is called frugality. Clearly, such an increase in population savings is also reflected in the magnitude of demand.

4

Therefore, during the period of sales, promotions, discount systems and other events stimulating demand, buyers are actively purchasing goods. From this illustrative example, the conclusion follows that the lower the price, the higher the demand for goods. The converse is also true that the higher the price, the lower the demand for the product.

5

This circumstance is expressed in the law of demand, which expresses this inverse relationship between the value of demand and the price of a product. There are certain factors (determinants) that affect the magnitude of demand. Such factors that reduce or increase demand in the market include: consumer tastes and preferences, the number of consumers in the market, their expectations and incomes, as well as the price of other goods.

6

To supplement a number of non-price factors, that is, factors that change the value of demand and are not dependent on price, can: advertising, seasonality, the availability of products replacing the desired product (substitute products), the quality of the product and the consumer's benefit from it, fashion and others.

7

Product offers - this is the desire and ability of the seller to offer goods on the market to the buyer at certain prices. It is known that a producer of goods seeks to maximize profits, so selling his goods at low prices means for him production at a loss.

8

At the same time, the price that the seller sets on his product depends on a number of factors. Such factors include: production costs, the cost of resources, taxes paid by the seller, seasonality, market size, the number of buyers and competitors in the market, the availability of substitute goods and complementary goods (complementary goods). Considering the production of goods and their subsequent sale, it is worth noting that the determinants of the proposal also include the level of production, consumer expectations and others.

9

With increasing demand, the seller can increase the price of the product and sell it at a better price. Therefore, with an increase in the price of a product, its offer increases by sellers. Consequently, the law of supply consists in a direct relationship between the price of a product and the volume of its supply by sellers in the market.

note

The cost of goods is affected by substitute products. For example, comparing milk and lemonade, it becomes clear that with increasing prices for milk and lemonade, the demand for milk will change less. Because soft drinks like soft drinks have more substitutes than milk.

Useful advice

The increase in the number of competitors in the market will lead to the fact that each of them will reduce the price of goods. Thus, a decrease in supply on the market will lead to an increase in product prices, and vice versa.