The main elements of the market mechanism are supply, demand and price. In a market economy, there is a constant interaction between buyers and sellers. An equilibrium price is formed under the influence of buyers 'demand and sellers' supply.
Instructions
Step 1
The buyer makes a demand for the product, which will depend not only on the buyer's taste preferences, but also on his income, the price of goods and substitute goods (substitutes). In quantitative terms, demand is determined by the volume of goods that the buyer can and wants to purchase over a certain period of time.
Step 2
The law of demand operates in economics. It lies in the fact that with an increase in product prices, the value of demand will decrease. Indeed, the more expensive a product is, the fewer consumers can afford to buy it. The law of demand also has the opposite effect, that is, with a decrease in the price of a product, demand will increase.
Step 3
The relationship between demand and the price of a good reflects the price elasticity of demand. Elasticity shows the sensitivity of demand to price changes. The percentage change in demand can be higher or lower than the percentage change in price. Demand can respond not only to a change in price, but also to a change in the consumer's own income, in this case the income elasticity of demand is calculated. The elasticity index has practical application. I focus on the elasticity indicator, the seller can adjust his pricing policy. For example, if a product has a high price elasticity of demand, then a significant increase in sales can be achieved as a result of a decrease in the price of the product.
Step 4
The offer reflects the volume of goods that the seller can and wants to sell at a certain price. The size of the offer also depends on price and non-price factors. For example, the volume of supply depends on the technological features of production and on the provision of the production process with the necessary resources.
Step 5
It is profitable for enterprises to sell their products at the highest possible price. The law of supply is that with an increase in the price of products, sellers will increase the volume of supply. the action of the market mechanism forms the market offer price, that is, the minimum price at which sellers offer their goods on the market.
Step 6
The sensitivity of supply to price changes also reflects the elasticity indicator. If the product has a high price elasticity of supply, then with an increase in price, the manufacturer must increase the volume of production. Expansion of production will take time and expense, so manufacturers, more often than not, cannot immediately respond to changes in the prices of goods.
Step 7
Changes in supply and demand can be reflected in a simple two-dimensional graph. The abscissa shows the volume of demand, and the ordinate shows the price. The supply and demand curves will reflect the relationship between price and sales volume, and the type of graphs will depend on the elasticity. At the intersection of the supply and demand lines, an equilibrium price is formed, at which the volume of demand for a product will be equal to the volume of supply of this product.
