Demand, supply and market equilibrium

Among the categories of a market economy, demand, supply and market equilibrium are perhaps the most important and usable. These categories characterize a multitude of performance indicators of various forms and types of enterprises.

In the simplest sense, demand is an indicator that characterizes the amount of goods that consumers are able to acquire for a specific period of time. Two kinds of demand are taken to distinguish in modern science.

Individual demand characterizes the demand of a particular, individual individual.

Industry demand is an indicator of the aggregate demand for this product of all market participants. The maximum possible number of goods that individuals can purchase at a given price and for a certain time is characterized by an indicator of the volume of demand.

Practically, demand, supply and market equilibrium are measured using various techniques. For example, the scale of demand demonstrates the relationship between the quantity of goods and their price. On this dependence, in fact, the law of demand is constructed , which consists in the fact that the magnitude of demand decreases with an increase in the price of this commodity. Consequently, the demand function is the inverse of the price function. If the price is denoted as P, and the demand as D, then the relationship between them will be reflected by the formula F (A) = 1 / f (P). However, economic theory also provides for some exceptions to this law, which characterizes demand, supply and market equilibrium. These exceptions relate to certain groups of goods that are on the market, are not affected by these patterns. We are talking about the Griffen group, which includes all the essential goods and Veblen goods, which include luxury goods.

The offer characterizes the physical quantity of goods that firms and enterprises are ready to present for sale on the market, its values are determined in a manner similar to that in respect of demand. It turns out such a dependence: F (S) = f (P), where S - the value of the supply of goods.

Market equilibrium reflects such a situation on the market, in which parametrically demand is equal to supply and an equilibrium price is formed.

In addition to the categories of demand, supply and market equilibrium, the very important indicator of a market state is the notion of elasticity, which is the magnitude of a change in one market parameter when another changes. There are different types of elasticity: by demand, by income, by price, arc elasticity, cross-over, and others. They, in conjunction with the indicators of the temporary possibilities of enterprises, determine the types of market equilibrium.

When demand increases, and enterprises do not have enough time to increase supply, instant equilibrium arises. It is formed only when the price exceeds the original price.

Short-term equilibrium arises when, with increasing demand, producers begin to increase supply by increasing output.

Long-term is achieved by total increase in production volumes by all enterprises of this industry. At the same time, the elasticity of supply increases, and the price becomes a "normal market".

As can be seen even from such a superficial analysis, there are quite certain advantages and disadvantages of the market mechanism. Among its merits include economic democracy, effective distribution and flexibility.

The list of objective shortcomings includes:

• Inability to effectively use natural resources;
• Promotes the adoption of only such managerial decisions that are effective at a short stage of business activities;
• Does not stimulate the reproduction of public goods;
• Develops unevenly.

A favorable background for business development is determined by the ratio of advantages and disadvantages, which helps to choose the right strategy for economic development.