What is Supply and Demand?

What is Supply and Demand?
Supply and demand are two basic concepts of economics. Supply means the goods and services that producers want to offer to the market for a certain price. Demand is the set of goods and services that consumers aim to consume for a certain price. These two concepts aim to explain how the economy will behave under different market conditions. In this article, you can find answers to questions such as what is supply, what is demand, what is the equilibrium point, and what is the supply-demand relationship in the stock market.

What is Supply?

Supply means the amount of goods and services that producers are willing or able to sell at certain price levels. The law of supply describes the relationship between supply and price. Accordingly, if all other variables remain constant, if the price of a good or service in the market increases (decreases), the supply will tend to increase (decrease).

According to the law of supply, there is a positive relationship between price and supply. This behavior between supply and price is represented by the supply curve. Accordingly, as the price of a good or service increases, its supply will increase. Therefore the supply curve is positively sloped. In other words, the supply curve shows what the planned quantity to be supplied will be in response to a price change, if all other variables affecting producers remain constant.

The basic idea here is based on the producers' behavior to obtain maximum profit. So when prices increase, producers increase supply to make more profits. On the other hand, if prices decrease, input costs suppress production.

Supply may fluctuate due to changes in prices due to demand, as well as any factor that will affect the amount that producers want to sell at a certain price level, such as changes in input costs, increase in production due to technological progress, changes in expectations, competition or increase in producers, legal regulations, natural events and social developments. It may also vary due to
What is Demand?

Demand refers to the amount of goods and services that consumers are willing or able to purchase at certain price levels. The law of demand expresses the relationship between demand and price. Accordingly, if all other factors are constant, if the price of a good or service in the market decreases (increases), demand will increase (decrease).

The negative relationship between demand and price is represented by the demand curve. Accordingly, as the price of a good or service decreases, the quantity demanded will increase, so the demand curve is negatively sloped. In other words, when all other variables remain constant, the demand curve shows what the quantity demanded will be in response to price changes.

Demand may fluctuate due to changes in prices due to supply, as well as any factor that will affect the amount consumers want to buy at a certain price, such as an increase in the general income level, demographic changes, macroeconomic developments, changes in consumer preferences and expectations, the increase in substitute products and legal regulations. .
What is the Balance Point?

Briefly, the equilibrium point can be defined as the intersection of the supply curve and the demand curve. At the equilibrium point, the amount of goods and services that consumers are willing or able to buy is equal to the amount of goods and services that producers are willing or able to sell. In other words, at the price level at the equilibrium point (equilibrium price); The quantity of goods and services supplied equals the quantity of goods and services demanded. At this point, there is no excess supply or demand.

If supply exceeds demand (excess supply) or demand exceeds supply (excess demand, deficiency), prices tend to form a new equilibrium point. In case of excess supply, producers aim to increase demand by reducing prices, however, as a result of falling prices, supply also tends to decrease. Prices will continue to decline until the market reaches equilibrium. On the other hand, when demand exceeds supply, producers tend to increase prices. As prices rise, demand will decline, quantity supplied will increase, and the market will once again stabilize at a higher price level.

How quickly the equilibrium point is reached may vary depending on pricing behavior. In perfectly competitive markets, supply and demand imbalances are often temporary. This phenomenon is explained by the law of supply and demand. Accordingly, the price of any good or service is adjusted to balance the quantity supplied and the quantity demanded.

However, the elasticity of supply and demand is another factor that should be taken into account. The relationship between the supply or demand of a good or service and the change in price is defined as elasticity. Inelastic goods and services tend to be insensitive to price changes, while flexible goods and services are sensitive to changes in price.

Price elasticity of demand; It measures the change in consumption of a product due to a change in its price. The existence of substitutes is one of the most important factors affecting the flexibility of the goods and services in question. If the goods and services in question are necessary and do not have sufficient substitutes, their demand will not change if prices rise, that is, they are inelastic.

Price elasticity of supply; It measures the degree of response to price fluctuations in the form of a change in the quantity supplied. In other words, price elasticity of supply indicates how quickly producers change production levels in response to price changes. According to the law of supply, as the price of a good or service increases, its supply will increase. However, in the case of inelastic supply, there is no change in the quantity supplied in response to the price change.
What is the Supply-Demand Relationship in the Stock Exchange?

The supply-demand relationship in the stock market refers to the interaction between market participants, in other words, buyers (demand) and sellers-suppliers (supply). Prices in the stock market are determined by the supply-demand balance in question. Supply can refer to the shares that a company puts on the market, or it can also represent all market participants who want to sell the relevant stock at a certain price level. In turn, demand corresponds to market participants who want to buy the stock in question. Buyers attempt to purchase the stock for a certain price (the current value of the stock).

However, although the supply-demand relationship can be evaluated specifically for any stock, it can also be considered specifically for any index. To give an example, the rise of the BIST 30 Index; It means that the demand for the stocks that make up the index or the number of investors has increased, in other words, investors demand more than what they sell.

Supply and demand in stock markets; It varies depending on the expectations of market participants, news flow, macroeconomic data and other factors. For this reason, market participants closely monitor the market dynamics affecting the supply-demand relationship and make investment decisions based on this information. Factors affecting the supply-demand balance in the stock market; Data flows may be affected by developments such as political and geopolitical developments, fiscal and monetary tightening/loosening steps, financial performances of companies, investor expectations, company news, incentives and tax practices, share buybacks and share splits.