The process of interaction between supply and demand it is the core element of market economies, which are the norm in the world where almost all economies are capitalist.
Interaction refers to a process in which the price levels are determined by the coincidences in the price to exchange something, between a person who owns it and is willing to part with it, and another who does not have it but would provide some utility. .
What is the Offer? The offer process comes from the verb offer and refers to set of mechanisms by which goods reach the market at a given price. In some cases, the producer establishes a price and hopes that potential consumers will have access to it, or else it will have to be lowered to get demand. In the largest economies, the producer delivers his product to other economic agents who have exclusively the function of offering it.
For the activity to be profitable, the producer should try to obtain at least as much money as he spent to produce the good, since it surely had costs: this implies that the suppliers are at the same time demanding of other things.
It is frequent that the economic models of supply seek to find what are the determinants that make the appearance of more or less quantities in the market. The essence of the supply and demand model, however, is that these determinations are not objective but are due to an aggregation of the subjective preferences of users.
However, there are some elements that make up the determination of the supply level, taking into account the general rule that the higher the supply (for equal demand), the lower the price, and when the supply is lower the price will rise.
- The technologyBecause a new way of producing can increase the quantity with the same level of effort.
- The factor costs, which, as has been said, increases the amount that must be sought to compensate for the offer.
- The number of bidders, because if there are more companies, the higher level of supply will exist.
- The expectationsSince prices and quantities experience a dynamic trajectory, and many operations can be done both at one time and the other.
- In agricultural products, the weather it is a determinant of supply.
What is demand? The other side of the process by which products reach the market is the interaction by which they leave it, that is, the user acquisition. It is not necessarily about the acquisition for consumption, since there are goods that are bought to produce others or even that are bought to sell in the future.
The general process of economics tends to assume that the suppliers determine the price (as explained in the case of supply) while the demanders meet it and respond with their decisions. As a rule, Except in the case of special goods called giffen, it can be said that demand has an inverse path to price: when this increases, the demand is lower.
In addition to price, there are other factors that come together to determine the levels of demand:
- The rent perceived by applicants, since the price level they are willing to pay is usually measured as a portion of their income.
- Their pleasures, and your individual preferences.
- The expectations on future prices and quantities.
- The prices of substitute goods (Well, there are times when you can stop buying a good and get its utility in another)
- The prices of complementary goods (as there are goods that need others to be consumed).
Below is a list of supply and demand cases, with particular situations that exemplify the process:
- The increase in the price of a fruit due to a drought.
- Decreases in the price of out-of-fashion products.
- The decrease in demand for cars resulted from significant increases in the price of fuel.
- Changes in the price of clothing for simple fashions.
- Antitrust laws, seeking that the introduction of many companies increases the level offered.
- Changes in the price of bonds, where the supply-demand interaction is instantaneous and minute by minute.
- The fall in the quantity produced of certain goods when they are replaced by modern technologies.
- Labor unrest, where job applicants (employees) always seek a higher salary and applicants (owners) are seeking to pay as little as possible.
- The enormous expenditures in advertising, in order to attract more demand.
- The decreases in the price of products out of season.
