Supply and Demand Economic Concept
Demand
It is common knowledge that market is driven by supply and demand. Actually, one should go deeper in the market structure in order to get an understanding what a market is and which factors it is ruled by. It is really important not only for market traders but also for ordinary people as we all have something in common – we need to control our budget and expenses.
Market is a complicated and multilevel structure in which all the factors have to be taken into account. Historically the term market appeared in the Middle ages and meant a square or a kind of space where the trade was held. However within the development of the trade relationships and the market itself the term got another meaning For example economist A. Kurno defined the market as a place where the relationships between a customer and a seller are equal and the prices can be easily flattened out. That means that market in a wider sense is interaction between supply and demand regulated by free prices.
There are three main mechanisms of the market: supply, demand and prices. They are tightly connected with each other. Actually, these things form the market. It means that they serve as the main conditions for existence of the market.
Now we are going to get deeper into the topic and see what each factor means.
Demand
Demand is a willingness and ability of the customer to buy the product.
The meaning of the term demand is twofold. On the one hand, customers have a wish to buy some goods. On the other hands, their abilities are restricted by the amount of money they have.
There are two ‘’parts” of demand:
- qualitative
- quantitative
Qualitative side of the term shows the dependence of demand from such factors as climate, social, national and religious environment and the level of economic development.
Quantitative side is always connected with money, in other words with the ability of people to pay. The demand based on the ability of people to pay is called effective demand.
There also two types of factors which influence the level of demand. They can be either price or non-price. Price factor is a price of a good and non-price factors include customers’ income, types and preferences of consumers, the amount of similar goods available etc.
Supply and demand are inseparable. That is why there exist some laws, which regulate them.
The dependence of demand from price is described by a function of demand.
Qd=f(P) where Q – the volume of demand P – price and f - function of demand
The dependence by which the volume of demand is inversely related to the price is called the law of demand. According to the law of demand, the lower are the prices the more people buy these goods. However, in some cases there is a direct dependence between the price and demand. This means that the higher are the prices the more people buy this product (from Q1 to Q2).
This dependence is valid in three cases:
the …
