The theory of supply and demand reveals the main characteristics of a market economy. The concepts of supply and demand help to understand the mechanisms of formation of market prices and the consumption of goods, as well as to determine the patterns of behavior of buyers and sellers in the market.
Instructions
Step 1
In order to build a curve of supply and demand, it is necessary to define the concept of demand. Demand is the desire and ability of buyers to purchase a particular product or service. The demand curve rises at a lower price and falls at a higher price, hence: the lower the price, the higher the demand. To depict the demand curve on a sheet of paper, a coordinate axis is built. The vertical indicates the price, the horizontal indicates the quantity.
Step 2
An offer is the ability and desire of sellers to offer a product or service on the market. The supply curve rises with an increase in the price of the product, as a result, the curve decreases with a decrease in the price. A coordinate axis is plotted to represent the supply curve on a new sheet of paper. The designation of the coordinate axes is the same as in the construction of the demand curve.
Step 3
By superimposing the supply and demand curves, you can take a closer look at the pricing process in the market. Equilibrium occurs with the same volume of demand for a product and its supply in the market. The S (supply) curve is the supply curve, the D1 and D2 (demand) curves are the demand curves.
Step 4
If the price is initially set above the P2 level, then in this situation supply exceeds demand, and the latter, in turn, is reduced. If the price is initially below the P2 level, then the demand exceeds the quantity Q of goods and services offered on the market.
