Theory of supply and demand: essence, characteristic, basic concepts

The theory of supply and demand is the basis of the market model that prevails in most developed countries. Relative simplicity of formulations, visibility and good predictability led to the fact that this concept has gained immense popularity among scientists and economists all over the world.

The foundations of the theory of supply and demand were laid by the famous apologists of the market economy, A. Smith and D. Ricardo. Later this concept was supplemented and improved until it acquired a modern look.

The theory of supply and demand is based on several basic concepts, the key among which are, of course, supply and demand. Demand is a significant economic value that characterizes the need of consumers in a particular product or service.

Scientists distinguish several classifications of demand. For example, there is an individual demand, that is, the demand of a particular citizen for a certain product in the market in question, and the aggregate, that is, the total demand for certain goods and services in a particular country.

In addition, demand is primary and secondary. The first is the need for a clearly chosen category of goods in general. Secondary demand indicates interest in the goods of a certain company or brand.

The theory of supply and demand determines the latter as the quantity of goods that is on the market at a particular moment in time, which the producers are ready to sell. It is worth noting that the proposal, like demand, can be individual and cumulative, the latter being the total volume of the proposed product in a particular country.

The main factors of supply and demand can be conditionally divided into several groups. The first should include those that do not directly depend on the activities of buyers and manufacturers. First of all, this is the general socio-economic situation in the country, the state's policy in the sphere of production and consumption, competition, including from foreign organizations.

Internal factors include the extent to which the products of this manufacturer are competitive, how well the price and marketing policies are conducted , and the level and quality of advertising, the level of incomes of citizens, and changes in such indicators as fashion, taste, addictions, habits.

The basic laws on which the theory of supply and demand are based are the laws of precisely these economic categories. So, the law of demand proclaims that the quantity of the goods, under certain invariable conditions, increases in the event that there is a reduction in the price of this product. That is, the amount of demand is inversely proportional to the price of the goods.

The law of supply, on the contrary, establishes a direct relationship between the value of the offer and the price: under certain constant conditions, an increase in the price of the goods leads to an increase in the number of offers in this market.

Demand and supply are not divorced from each other, but are in constant interaction. The result of this process is the so-called equilibrium price, at which the demand for a given product fully corresponds to the offer.