One of the most important and well-known concepts in the field of economics is the Law of supply and demand. One of the fundamental principles to explain how the price of a good or a service is determined in the market.
This Law integrates and relates two elements derived from the sale and purchase actions. That is, the commercial interaction that exists between the suppliers of goods or services and their applicants.
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To better understand this economic model, previously it is necessary to know what is known as an offer. Likewise, it is important to know how the term of demand is defined, as well as the laws by which each one is governed.
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In this article you will find:
Concept of Offer, its Law and Examples
When it comes to offering, it refers to the goods or services that are intended for the sale in the market. Sellers or bidders are the people or entities that decide how much of these goods or services they can produce.
In this sense, Law of Offer states that the price of a product or service is directly proportional to its offer, that is, at a higher price of the good or service, the quantity that the offeror offers of the same will also be higher.
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In this case, sellers observe in the market the rise in prices for the goods or services that they produce, this motivates them to produce more of them and in order to obtain greater profits, such is the case of fashionable shoes or a new model of cell phone.
Concept of Lawsuit, its Law and Examples
The demand consists of goods or services that are sought In the market, consumers or buyers are the people who want to buy them, they are the that determine the quantities they are going to buy and the price up to which they are willing to pay for they.
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In this case, the Law of Demand indicates that the price of a product or service is indirectly proportional to its demand, that is, that at a higher price of the good or service, the quantity that the claimant acquires of it will be less.
In this case, buyers observe in the market the rise in prices for the goods or services they want, this motivates them to save money and buy only the quantities that they really need or, look for other places where they can get them at a cheaper price, all this in order to acquire what they need while spending the least amount of money possible; for example old-fashioned clothes or fruits in season.
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Supply - Demand Relationship
This model indicates the relationship between both concepts and the equilibrium point for the price of goods or services offered and demanded, to later establish their value in the market.
It graphically establishes that, in a market under conditions of free competition, the price is at the equilibrium point, that is, where the supply and demand curves intersect.
Bringing this to theory, the price is determined by balancing the forces of the demand and supply, this point is the one where sellers and buyers are satisfied with the price of goods and services in the market.
The logical explanation of this postulate is based on the fact that buyers are not going to purchase high-priced products, then by not selling them, the bidders must lower their value, to the point where the price is accepted and sold all their commodity.
Seen from the other angle, if the sale price is very low, buyers will acquire so much merchandise that it may be sold out later, at products are scarce in the market, they will be willing to pay more money, thus the bidders will raise the price until they reach the Balance.
