What is supply and demand? Factors affecting supply and demand
What is the law of supply and demand?
What is supply?
Supply is the total amount of goods and services that manufacturers are willing and able to bring to the market at different prices in a certain period of time (regardless of other factors).
When consumer demand increases, prices of goods/services also increase. Manufacturers will supply more to meet demand, meaning supply increases and vice versa. The components of the bow include:
Individual supply: Is the volume of products and services that a supplier is able and willing to sell at many different prices, during a specified period of time in the market.
Market supply: Is the total supply of suppliers in an industry.
Total supply: Is the total supply of goods and services of the entire economy, a country or continent.
What is a demand?
Demand is the consumer's ability/need to purchase a quantity of goods and services, at different prices over a period of time (regardless of other factors).
When the price of goods and services decreases, users want to buy more, which causes demand to increase and vice versa. Components of the bridge include:
Individual demand: Is the need and ability of a consumer to be willing to buy goods and services at different prices.
Market demand: Is the total amount of individual demand in a product industry.
Aggregate demand: Is the total demand and ability to consume goods and services of consumers, businesses, and governments.
Statement about the law of supply and demand
The law of supply and demand describes the relationship between sellers (supply) and buyers (demand). It represents the amount of goods/services that manufacturers are willing to sell and consumers want to buy at each given price.
This law explains how the economy works and determines the prices of goods and services. Any change between supply, demand and price causes the remaining factors to be affected.
Where there are transactions, there is a supply and demand relationship. The two factors of supply and demand seem to be opposing each other, but they help form a balance point, shaping the market.
The equilibrium point here is understood as: At which the amount of goods and services the seller is able and willing to provide corresponds to the buyer's needs. At this time, the equilibrium price is established, the market is stable with no tendency to increase or decrease prices.
Supply and demand are two sensitive factors, because any impact factor will cause supply and demand to change, leading to the market having to find a new balance point.
Factors affecting supply and demand
Below are some factors that affect supply and demand in the economy:
· Tax, interest rate, and salary policies: High taxes and interest rates reduce supply and lower demand. On the contrary, increasing wages increases demand and purchasing ability.
· Expectations about the future: Expectations about increased or decreased prices of goods and services will directly affect supply and demand.
· New technology: Increasing productivity increases supply, and adding new features to products stimulates consumers and increases demand.
· Raw material prices: Increase production costs causing supply to decrease or product prices to increase causing demand to decrease.
· Environment, weather: Under favorable conditions, supply will increase and vice versa.
· Population and tastes: Population growth causes demand to increase, consumer tastes also continuously change, causing demand for goods and services to change accordingly.
· War, unemployment rate, epidemic: These three factors negatively affect the economy, causing supply and demand to decrease significantly.
· Interest rates: The government lowers interest rates to encourage consumers and manufacturers to borrow for business and shopping, causing supply and demand to increase and vice versa.
The impact of the law of supply and demand on subjects
Government
The law of supply and demand affects the government's administration and macro policies on: Taxes, currency, goods... Measures to regulate supply and demand help reduce inflation and increase economic growth.
In addition, the state also considers the impact of supply and demand on food security, inflation, and unemployment rate to promptly intervene to ensure people's social security.
Enterprise
Fierce market competition forces businesses to adjust prices according to supply and demand. It affects decisions about the amount of goods, services and prices they will provide to consumers.
At the same time, supply and demand push businesses to innovate technology, improve competitiveness and labor productivity to save input costs and upgrade products to attract users.
People
High or low supply of goods causes price fluctuations, which is one of the factors affecting consumers' purchasing decisions. High prices make them reduce their shopping needs.
Besides, the diversity of substitute goods causes people's needs to constantly change. This affects the supply of goods on the market.
The concept of "what is supply and demand" and its impacts on the economy are fundamental knowledge in financial economics. Learning and analyzing the laws of supply and demand will help you understand how the market works, thereby planning effective business & investment strategies
