Supply and demand: how they affect the market - GovtVacancy.Net

Supply and demand: how they affect the market - GovtVacancy.Net
Posted on 23-10-2022

Supply and demand: how they affect the market

Nothing affects the market economy as much as supply and demand. If supply exceeds demand, prices fall. At worst, companies find it difficult to sell their products and services profitably. Conversely, too low a supply causes prices to rise and consumers can no longer afford the desired product.

What are supply and demand? Definition and explanation

"Supply" is the economic term for all goods and services available on the free market that trading partners can buy in exchange for money, goods, or other services. Consumer goods (such as those often found in shop windows) are often thought of first, but the term is used in a much broader sense, applying to workers, freight traffic, foreign exchange, etc., goods, etc.

"Demand" is the complementary concept of supply. Indicates the actual need for certain goods or services with potential business partners, such as businesses and households.

The interaction of supply and demand

There is a direct relationship between supply and demand because supply increases mainly when demand is high. First of all, there is the so-called excess demand, when the need cannot be fully satisfied with the currently available supply. This causes an increase in the market price, so more companies offer the good in question, which (at least at the time) allows you to collect a lot of money.

This is why the effect is often reversed, because the more expensive a product or service is, the lower the demand because consumers will look for cheaper alternatives. This creates an oversupply. The market price falls to such an extent that the good in question is so cheap that the interest of buyers and therefore also the demand begins to increase again.

The meaning of supply and demand in the day to day of companies

Supply and demand are very important for the future planning of companies. Regardless of whether it is about offering new products or services, or creating the business plan to start a business, the current needs of the market (demand) and the real situation (supply) determine the success or failure of a company.

There are several ways to analyze these two quantities for a given product. Market research, customer inquiries, and economic analyzes of price developments and production data have proven their worth.

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