Supply and demand - The most important concepts that form the basis of any economic system. The interdependence of these two factors from each other traces the economic law. Another important concept directly related to these factors is price.
Demand reflects the ability and desire of a potential buyer to buy a product for a certain amount of financial resources, in a strictly defined price and quantity range. The volume of demand can fluctuate and depends on many factors influencing it. This includes the monetary level of consumer income, and the size of the market, and seasonality, inflation, the availability of other interchangeable goods, and others.
The proposal, in turn, reflects the capabilities and desire of potential manufacturers to sell certain products in a specific quantity at certain prices for a strictly limited time. The volume of supply, as well as demand, fluctuates and depends on the possibilities of production (involved capacities, used technologies, the availability of material and labor resources, taxes, etc.).
Moreover, supply and demand in the market Ideally should be balanced. Then there will be no shortage of goods or its overproduction. The offer is formed according to the law, in accordance with which its value grows with increasing price value. Demand is formed according to the law, according to which its value decreases with an increase in price value.
Based on this, laws of supply and demand interact with each other in real life. An example of this is the current system of the modern market economy of the Russian Federation, when pricing is formed at the intersection of the curve of interaction of elasticity of demand and supply. It is no secret that the market economy of any state is subject to fluctuations and the equilibrium development of the value of supply and demand is far from each other. The modern market, for the time being, is an unbalanced balance when supply exceeds demand or demand exceeds supply. In the first option, this may be due to the overproduction of consumer goods and services, an increase in their prices or low purchasing opportunities. In the second option, this may also be due to low incomes and high prices. The greatest return for the development of any economic system creates an equilibrium price. Such a price is formed subject to free competition and creates an ideal balance between the volume of supply and demand, providing the greatest amount of economic efficiency from the progressive development of production, the market of goods and services in general. Therefore, the state government, by its decision, is trying to influence the pricing of goods by forcibly setting threshold limits, thereby regulating supply and demand.
The balance of the domestic market and its solvency plays an important role in the development of the production process, since the market is the most important area where the exchange and distribution of material goods (exchange of goods, services) takes place. The labor market, the market of means of production, the capital market in a broad sense affect the structure and volume of manufactured goods, the level of income and solvency of the population, thereby forming supply and demand. The state through targeted comprehensive programs helps producers to develop not only by allocating subsidies for production, but also has a direct impact on the formation of sales volumes of goods and services, thereby regulating supply and demand. The methods of state regulation include various measures. These are preferential preferences, subsidies, customs policies aimed at protecting the domestic market, as well as measures conducive to the comprehensive development of exports of goods and services, etc. It is easy to notice at the same time that the role of the state in the formation and development of a clear balanced economic system is quite significant and very important.