Market demand means the desire and ability of buyers to purchase a product for the price indicated by the seller. Thus, the buyer, seeking to save money, will want to purchase the product at a lower price than the one for which it is being sold. The seller, in turn, offers the product at a more favorable cost for him, and therefore he sets a high price for it.
Instructions
Step 1
The influence of the price of a product and the demand for it is explained by the income effect and the substitution effect. The income effect is that with a limited amount of own funds, it is much easier to purchase a product at a low price, because the buyer does not have to deny himself the purchase of other products.
Step 2
Therefore, buying a product necessary for a consumer at a cost acceptable to him, he does not spend a significant part of his money, and thus saves his income. It is worth noting that the economic logic is dictated by the limited income: consumers strive to maximize their money and accumulate it. Consequently, the amount of demand also depends on the amount of income: the more money, the buyer can buy more goods at high prices.
Step 3
In general, the described behavior, in which the buyer reduces his consumption, spending of money, stops buying goods, is called thrift. Undoubtedly, such an increase in the population's savings is also reflected in the amount of demand.
Step 4
Therefore, during sales, promotions, discount systems and other events stimulating demand, buyers are more active in purchasing goods. From such an illustrative example, it follows that the lower the price, the higher the demand for goods. The converse is also true, that the higher the price, the lower the demand for the product.
Step 5
This circumstance is expressed in the law of the amount of demand, which expresses this inverse relationship between the amount of demand and the price of the product. There are certain factors (determinants) that affect the amount of demand. Such factors that reduce or increase demand in the market include: consumer tastes and preferences, the number of consumers in the market, their expectations and income, and the price of other goods.
Step 6
A number of non-price factors, that is, factors that change the amount of demand and do not depend on price, can be supplemented by: advertising, seasonality, the availability of products replacing the desired product (substitute products), the quality of the product and the benefits of it for the consumer, fashion and others.
Step 7
Product offers is the desire and ability of the seller to offer the product on the market to the buyer at certain prices. It is known that a manufacturer of goods seeks to maximize profits, therefore selling his goods at low prices means production at a loss for him.
Step 8
At the same time, the price that the seller sets for his product depends on a number of factors. These factors include: production costs, resource costs, taxes paid by the seller, seasonality, market size, number of buyers and competitors in the market, availability of substitute goods and complementary goods (complementary goods). Considering the production of goods and their subsequent sale, it is worth noting that the determinants of supply also include the level of production, consumer expectations, and others.
Step 9
With an increase in demand, the seller can raise the price of the product and sell it at a better value. Therefore, with an increase in the price of a product, its supply by sellers increases. Consequently, the law of supply consists in a direct relationship between the price of a product and the volume of its supply by sellers in the market.
