The law of demand and supply is a theory that explains the interaction or transaction between a seller who sells an item and a buyer who wants the item. Theory was created to determine the impact of expectations on a particular product or project on the selling price of that product.
This law is one of the basic laws in the world of economics. In real life, supply and demand are opposites, so the market will find a balanced price in the future. Demand or supply can increase or decrease, and this may occur due to many factors.
The basic law of supply and demand
Both are based on four laws. This law is used as a theoretical basis. This law can be used as a reference for economic actors to do business. Because in this law, if something happens, something will happen. Therefore, business people can find answers from these laws. To learn more, here’s a look at the basic rules of selling in a variety of situations:
- When the supply increases: If the supply of goods increases, the price offered will be higher.
- When the supply decreases: If the supply of goods decreases, the price offered will be lower.
- When demand increases: If the price of the product is low, the quantity of the product demanded will increase.
- When demand decreases: If the price of a product increases, the quantity of the product demanded decreases.
This is the basic law of the law of supply and demand. It can be seen that the votes between the law of demand and the law of supply are inversely related. Indeed, this is necessary to achieve a price balance.
Things that can affect the balance of prices
The price balance in the market may be high or low depending on several things. Taxes and subsidies can affect market price equilibrium. Taxes imposed on products result in higher product prices. Producers do not want to disturb consumers and reduce their burden.
As a result, the balance in the market is higher. In addition, there are subsidies as opposed to taxes. Subsidies granted to products will cause product prices to fall or fall. As a result, the equilibrium price in the market falls or falls.
Examples of the law of supply and demand in everyday life
Suppose there is a cake shop that sells chocolate cakes that are so delicious that many people want them and rush into the cake shop. But suddenly, the price of the brownie cake doubled because the shop owner felt that someone was still buying the product. This is simply not true and the brownies being sold will be wasted.
This is because consumers will think twice before buying it, especially when the price is high. That is an example of the law of demand. An example of how to offer is when the brownie cake doesn’t sell, the owner finally decides to lower the price. However, the owner will only sell in small quantities to maintain a supply of suppliers. It is very important to directly represent the relationship between quantity supply and price.
Supply and demand to achieve a price balance
As discussed above, these two things greatly affect the balance of prices in the market. Maybe some people don’t understand the meaning of price balance itself. A balance of prices means producers can sell all the products they produce, and buyers can buy all the products they want. At some point, the stock of goods on the market is certain.
The seller cannot add prices or fees determined by the market based on current consumer demand. However, producers can reduce or increase the quantity of goods supplied to the market according to the price set. In fact, if the seller wants to increase the price of the commodity above the price set by the market, this is fine. However, this will be detrimental to these traders.
Because no consumer wants to buy, there is no balance in price, especially since the price is different from the market price. In this way, the trader faces the threat of loss from competitors, which can lead to bankruptcy.
Supply and demand functions
The demand function is a data or mathematical study that can be used to analyze prices and consumer behavior. In order for demand to follow the law of demand, that is, if the price of the product is lower, the quantity of the product demanded will increase, and vice versa.
Therefore, the relationship between price and demand is an opposite or opposite relationship. The supply function is an equation or relationship between the quantity of goods provided by producers and the price of goods on the market.
This supply can also follow the law of supply, that is, if the supply of a commodity increases, the price offered will be higher, and vice versa. Manufacturers usually use this supply function to estimate the quantity of goods or products to be produced.
If the relationship between price and demand in the demand function is contradictory, it is different from the supply function. Because in the supply function, the price of the goods provided has a consistent or positive relationship with the quantity of goods.
Factors affecting supply and demand
There are a number of factors that can affect the decline or growth in supply and demand. Factors that can affect demand include changes in product prices, consumer choices, and the number of alternative products available. One example is when the price of skin care products and color cosmetics falls, the demand for skin care products and color cosmetics will increase.
The factors that influence supply are divided into two factors, namely the main factors and supporting factors. The main thing includes production capacity, raw materials and labor which are included in the cost of production, and the last factor is the number of competitors who have direct influence.
The supporting factors are the supply of raw materials, weather and the breadth of the supply network. These are the factors that greatly influence supply and demand. These factors are like the legal basis of supply and demand.
That is a complete and detailed discussion of the law of supply and demand. An example of the meaning of the two things above has been described above. Supply and demand are the foundation of the economy.
Increase Your Company Expenditure Management Efficiency Up To 76%. Collect data automatically, increase productivity and prevent financial fraud and take full control of company budgets easily anytime anywhere with JojoExpense. Faster, easier, hassle free.
Managing Client Data Made Easier. JojoExpense gives you easy access to your company’s finances no matter the time and place. Well you want to file request reimbursement or allow cash advance, all through your mobile phone.
You can submit your request directly or save it for later, for example if you want to double check your application. It all depends on you in charge of your own financial management. When you are seated at your desk, you can focus completely on the important tasks and leave side management to the automated process. Let’s use the expense management application from Jojonomic now. Get a free 14 days demo!