Almost everyone must have heard of a well-known postulate: demand creates supply and vice versa. The law of supply and demand is a law that expresses the interdependence between the amount of goods and services desired by the customer and the amount of goods and services offered by the manufacturer. However, not all businessmen stick to this law, thus having low income and unreasonable production expenditures. Market relations are more often based on personal interests and unreasonable decisions, which later have negative consequences, both for business and consumers. To avoid this, every entrepreneur should pay attention to the work of this mechanism.
Consumers buy more goods when the price falls and less when it grows. Manufacturers, on the other hand, supply more goods when the price is increasing and less when it falls. As a result, buyers and sellers react to the stimulus, which is the market price, thus their activities balance supply and demand. If buyers wish to purchase more goods than the sellers intend to provide, the price inevitably increases. The higher price reduces consumption and stimulates the production, thereby balancing the demand and supply.
To understand the law it is also essential to consider the basic factors forming the supply and demand. Factors influencing demand include the market size, the level of income in society, availability of substitute commodities, inflation and more. Factors that influence the size of the supply include the level of technology, resource availability, taxation, availability of goods-substitutes and more.
It should be noted that not only the price affects the demand and supply, but the latter influence it either. With increasing demand, buyers are starting to compete with each other, and sellers choose those who will offer a higher price. When you increase the supply the sellers compete while the consumers can choose the goods at lower prices. In the result of the matching of supply and demand, the equilibrium price occurs, which means that there is a certain balance of interests of producer and consumer.
At present in the mechanism of supply and demand law is dominated by the elements of conscious regulation, discipline and routine inherent in each business entity of any form of ownership, as well as the state.
Almost everyone must have heard of a well-known postulate: demand creates supply and vice versa. The law of supply and demand is a law that expresses the interdependence between the amount of goods and services desired by the customer and the amount of goods and services offered by the manufacturer.