Login with Facebook

What is Market and Supply and Demand

We live in a world which is often called a market economy, what does it mean and what economic principles does it imply?

What is the market? 

A market is a real or fictitious place of exchange. On the market meet economic agents who offer a good service and others who come to get it. This creates a network of exchanges. These exchanges can be done in a physical place, with direct contacts or in a fictitious way, the contact then not being direct such as financial markets or internet sales. These exchange relationships are created around the product offered, its nature, its availability, its quality but also and above all, according to its price.

Different types of markets

The major economic markets are linked to the types of products offered; there are 5 of them:

• The goods and services market

consumers (households, businesses, etc.) buy goods and services from producers (businesses, governments, etc.).

• The labor market

here, households sell their labor power to companies, administrations, etc. for a salary.

• The financial market

on this market, economic agents exchange securities such as stocks, for example. The share price is called their price.

• The money market

it is a market frequented for the most part by banks where fiat money (notes) is exchanged for securities.

• The foreign exchange market

on this market, foreign currency (foreign exchange) is exchanged for national currency. Banks, businesses, and households are involved in this market.

Supply and demand

Supply represents the number of goods or services (within the framework of the goods and services market) that economic agents are ready to sell on the market. The supply of goods and services comes mainly from businesses but also from administrations or associations.

Conversely, on the market for goods and services, demand represents the number of goods and services that economic agents are ready to buy. We, therefore, find households (final consumption) but also businesses (which make intermediate consumption or investments) or administrations (operating expenses, investments).

Supply and demand are aggregated functions that represent the addition of the behaviors of all the economic agents intervening in the markets.

Attention, on the job market, the supply of work comes from households, and the demand for work comes from companies, administration (it should not be confused with supply and demand of jobs). The work is exchanged at a certain price i.e., salary. The supply and demand are respectively the numbers of goods or services that the actors in a market are willing to sell or buy based on price.

Example:

- The TV offer in a country corresponds to the number of units for sale in all stores combined

- The demand for this same country corresponds to the number of TVs that customers want to buy.

A bit of history on supply and demand

If the theory of supply and demand covers an old intuition for Roger Guesnerie, its formalization began in 1838 when Augustin Cournot introduced the demand curve. Later, Alfred Marshall introduced a supply curve representing supply according to prices. In the framework of the theory of partial equilibrium between supply and demand, at the intersection of these two curves are the price and the demand for equilibrium.

Supply, demand, and price

Supply is largely linked to the production of companies, which have a constraint expressed by their production cost, their turnover increases with the price of the goods or services sold. So if the price goes up, the turnover increases and the profit too. The offer is increasing according to the price.

The economic agents which form the demand, like households, in particular, have needed to be satisfied, but they have a constraint represented by their budget. So when the price of goods or services increases, they can no longer get as much as before, they must limit the quantities requested. The demand is, therefore, decreasing according to the price.

The interest of the supply and demand model

The interest of the supply and demand model is that it allows, outside the sophisticated formalism of the general equilibrium, to intuitively grasp the mechanisms at work in the decision to allocate resources in the economy of the market.

The offer of a good is the quantity of a product offered for sale by sellers for a given price. Unlike demand, that is the quantity of a certain product requested by buyers for a given price. The price of a good is considered to be a quantity dependent (among other things) on supply and demand.

From this principle, we derive a mathematical law, the law of supply and demand. This law is often generalized by a law of the markets, a name used to designate the law which governs a market, with or without the intervention of the state.

The law of supply and demand

The law of supply and demand often refers to partial equilibrium in a market. In markets where partial equilibrium applies, the following effects are seen:

- when the price goes up

- The supply tends to increase: producers are encouraged to offer more goods, new producers are encouraged to settle, holders of this good are encouraged to sell them.

- Demand tends to fall: the higher the prices, the less willing buyers are to buy.

- When the price drops, supply tends to decrease: Producers have less incentive to produce.

- Demand tends to increase: the lower the price, the more willing buyers are to buy.

It is presented differently, given a market where for each price, we combine supply (the quantity that all sellers want to sell) and demand (the quantity that all buyers want to buy). There is an intersection point that maximizes the number of exchanges. A price a little above will leave sellers willing to sell without a buyer. A price a little below will leave buyers willing to buy without a seller. In both cases, the number of exchanges will also be smaller than at the point of intersection. There will be buyers and sellers who will not be satisfied anyway, but it will be because of the price but not because they have not found anyone opposite.

A supply and demand curve corresponds to a given number of suppliers and applicants. An increase (or decrease) in the number of offerers or applicants causes a shift to the right or to the left, and therefore a change in the balance.

Having found that this principle could be applied to a good number of markets, economists have long sought what the conditions which a market had to fulfill in order for the point of equilibrium to be reached were.

Market research: sector, supply, demand, and environment analysis

In order to obtain satisfactory and relevant results when carrying out your market research, it is preferable to segment your approach around these four axes i.e., the market, demand, supply, and the environment.

Advice for your market research

To do your market research, you will have the choice between two solutions, do it yourself, which will take time, or outsource it to professionals, which will cost money. In the latter case, you must still participate in its development. Indeed, market research provides interesting knowledge that must be used to set up the project.

Some professionals now offer high-performance services for studying a market by allowing you to configure it i.e., number of responses, geographic area, etc

Before embarking on the collection of information, you must clearly define the market on which you will position yourself. There are types of products or services offered type of market (individuals, businesses, schools, administrations, etc.), a geographic area targeted, etc. The well-defined market is an essential starting point for conducting a relevant study.

It is necessary to adopt a structured and organized approach to conduct market research. To do this, you can segment your analysis around these four axes, the market, demand, supply, and the environment, and then you must ask the right questions. The objective is clear, analyze the market potential, and validate the commercial feasibility of your project.

First step: studying the market and its evolution

First of all, it is necessary to be informed about the market in a global way. The objective is to improve your knowledge in this area, market volume (turnover, quantities sold, etc.), main players, trends, likely developments. Here is an example of a list of questions to ask yourself to study the market and its likely evolution:

- What is the volume of the market? Particularly in terms of turnover, customers, quantity sold.

- How is the market doing now? What are its development prospects for the coming years? A market can be growing, declining, or stagnating.

- What are the current market trends?

- What products or services are available on the market?

- Who are your direct or indirect competitors? What do they offer? What are the common points and the differences between what is offered by the competition and your range of products/services? These elements will then be analyzed in detail in the study of the offer.

- Who are the suppliers of the competitors? What are their terms of sale? Who are my potential suppliers, and what conditions can they offer me?

The questions that you deal with during this step should allow you to develop your knowledge of the state of the market and the players that evolve there.

Second step: studying the demand and Supply

By studying the demand, the objective is to learn about the trade of the market and to judge if there is a potential to exploit. Here is an example of a list of questions to ask when studying the request:

- How many customers are there in this market? How is this number changing (increase, decrease, stagnation)?

- Who are these customers exactly? Where are they located?

- What is the rate of consumption by customers? How do they behave? It is necessary to seek details on the times, places, and habits of consumption, what motivates them to consume, and their level of satisfaction.

- What are the criteria for choosing consumers? What is their budget? What are the important points to trigger a purchase? The important criteria can be the price offered, the level of product quality, or the distribution method.

Ideally, it is necessary to study the evolution over time of the answers to each of these questions and the probable evolutions for the years to come.

Third step: studying the offer

The analysis of the offer consists of studying in detail what your competitors already offer on the market. Here is an example of a list of questions to ask yourself to study the offer:

- Who are the competitors on the market? Which companies have the largest market shares? How big are the main competitors? Where are they located, and how do they choose their locations? Since when have they been present, and what is their financial health? What are the latest market entrants?

- What products and services do they offer? What are the characteristics of these products and services (price, quality, marketing method, distribution method, after-sales service, etc.)?

- How do they communicate with consumers?

- How do competitors differentiate from each other?

- By what criteria do some competitors succeed better than others?

- Have any competitors experienced failures? Have they closed their business? If yes, what are the reasons?

 The in-depth study of the offer proposed by the competitors can allow you to identify possibilities to be exploited to prepare your future offer and have competitive advantages. You will also have a better knowledge of what works, the essential criteria for success, and also what did not work (thanks to the study of chess).

Fourth step: the study of the environment and legislation

The study of the environment consists of analyzing the factors likely to influence the market, such as the applicable regulations, technological developmentsMarket and Supply and Demand, or any other element that may impact it.

Here is an example of a list of questions to ask when studying the environment:

- What innovations are impacting the market? What about possible future technological developments? How often do innovations impact the market?

- What is the regulatory framework that governs the market? Are there specific laws for this market? What are the trends in the evolution of legislation?

- Are there professional groups or other actors who act or influence the market?

- Are there barriers to entry?


Comments




Send Comment

Need a custom
essay?

We will write it for you.
Order now

Free Essay Examples

Free essays:

Analysis of Consumption and Investment
Analysis of Business Cycles
Analysis of Fiscal and Monetary Policies
An Overview Of Economic Studies
Biosensors for cancer diagnosis
Business Analysis: Pricing strategies and Demand Curve
Broadcasting: How to Be Good In Front of the Camera
Bioconjugates for the Drugs Delivery
Cells of Immune system
Challenges that IT Managers are facing
Cochlear implant: what it is and how it works
Current challenges to the health of women
Doppler ultrasound or simply eco Doppler
DNA extraction
Dynamic Systems Modeling with Machine Learning
Digital Imaging: What Is It?
Economy analysis: Business Cycle and Economic Trends
Exchange rate and foreign currency risk
Economic Factors Affecting Decision Making In A Business
Economy Analysis: Inflation, Unemployment And Policies
Factors Influencing Interest and Exchange Rates
Fiscal and Monetary Policies in Response to 2008/2009
Fermentation: how it works and what it is used for
Financial Markets and Functions
Genetic regulation networks: modeling in biology
How does the economics of war affect society?
How can immigrants blend in the American society?
How to make your business survive at economic crisis
Importance of corporate sustainability
Interaction of Consumer and Firm Choices in Markets
Introduction to Microeconomics
Introduction of Microfabrication techniques
Journalism: What is News?
Journalism: Broadcast media and Television Presenters
Journalism: Sources of News
Journalism and Law
Key Determinants of National Income
Key Factors That Affect Pricing Decisions
Kinetic models in biology and Related fields
Know about the different forms of traditional African dances
Latest technology trends
Latest dance trends
Methods of labeling of nucleic acid that enable their detection
Macroeconomics: International Economic Issues
Neuromuscular disorders
National Economies, Fluctuation, and Responses to Fluctuations
Neurotransmitters: what they are and different types
Nanomedicines to target tumors
Overcoming Hiring Challenges for Nonprofit Organization
Principles of Microeconomics - Producer Theory
Principles of Microeconomics - Consumer Theory
Principles of Economics
Role of media in wartime.
Role of technology in the modern business environment
Role of Homeostasis in Human Physiology
Role of a digital artist
Skills in Journalism: Effective Interview
Systems biology - An understanding the functioning of biological systems
Self-assembly for biological systems
School of American Ballet
Types of corporate responsibility
The Role of Government Policy in Improving Economic Outcomes
Types of bioreactors and their applications
Technological perspectives and reflections of neural engineering
Understanding Perfect and Imperfect Competition
Ultrasound: physical principles and image formation
Understanding social entrepreneurship
Understand the importance of investigative journalism
Various theoretical perspectives of sociology
Virtual reality, what it is and how it works
What is MBA with Concentrations
What are the Causes of financial instability?
4 Facts about Origin of Mathematics!
5 techniques to create an animation
10 strategies to maximize corporate profits
13 Best colleges for political science in the world
6 Medical Technologies that revolutionized the healthcare in 2020
All you need to know about the ACA Code of ethics
Architecture and Democracy: An Introduction
Architecture and Democracy: Democratic Values
Architecture and Democracy: Democratic Procedures
All You Need to Know About a Synthesis Essay
An essential guide to understanding Film Theory
Application of Artificial Intelligence in Cyber Security
Applications of electrical engineering
Augmented reality: what it is, how it works, examples
Advantages And Disadvantages Of Social Networking
All you need to know about Cryptography
Applications of astrophysical science
All you need to know about architecture engineering
Applications of geological engineering
Artificial intelligence and medicine: an increasingly close relationship
An insight into Computational Biology
ACA code of conduct
A Rose for Emily
Applications of Mathematics in daily life
Architecture mistakes to avoid
All you need to know about Toxicology
All you need to know about Holistic Medicine
All you need to know about linguistics
An introduction to Linguistics and its subfields
All you need to know about Anxiety disorder
All you need to know about Drones
A Brief Insight into Political Science
Assumptions related to feminism
All you need to know about Byzantine emperors
All you need to know about labour economics
An insight into xenobots -the first-ever robots
An ultimate guide about Biomaterials
A Comprehensive Introduction to the Mona Lisa
Analysis methods of Transport through biological membranes
An ultimate guide about biochemical reactions
Analysis of brain signals
Artificial Gene Synthesis
Application to synthetic biology of CAD methods
All you need to know about metabolic pathways
Applications of BIOMEMS
All you need to know about the epidemiology
Asian vs. western leadership styles
All you need to know about Smart prosthesis
Analysis of Economy: Output of Goods and Services (GNP), and GDP on Economic success
A Guide to Pricing Strategies
An Overview Of Economic Studies
Analysis of Fiscal and Monetary Policies
Analysis of Business Cycles
Analysis of Consumption and Investment
How to Write a Personal Essay
Housing Needs in America
How to Write a Description Essay
How to Create an Excellent Scholarship Essay?
How to write a cause and effect essay
How to Hire the Best Essay Writing Service Provider?
How to Write a College Application Essay?
How to get the most out of your English lectures
How to write Expository Essay
How to succeed in your psychology class?
How to Write an Academic Essay in the Shortest Time?
History of Journalism
How Different Sectors are Using Artificial intelligence (AI)
How to write an informative essay
How to deliver persuasive essays?
How to Give a Convincing Presentation
How to write an essay on leadership?
Historical Art Still Around Today
Humanoid robot: what it is, how it works and price
History of Chemistry
Healthcare Advanced Computer Power: Robotics, Medical Imaging, and More
Healthcare AI: Game Changers for Medical Decision-Making and Remote Patient Monitoring
How to understand different types of English
How to Cope with Chronic Pain
How African American choreographers and dancers have influenced American dance
How mobile robot can do in logistics or in production
How To Become a Successful Entrepreneur
History of the Philosophy of Feminism
How is the climate changing?
How to Track Your Content Marketing ROI
How to Gun control In the USA?
Historical and contemporary role of labour in the modern world
How breast cancers are classified?
How the cells of our body communicate?
How the Lymphatic System Works?
How Digestive System Works
How to complete your capstone projects effectively?
How to write a research project
Healthcare technologies that help patients with better self-management
How to choose the topic of the senior capstone project
How to make your business survive at economic crisis
How can immigrants blend in the American society?
How does the economics of war affect society?
The Looming Energy Crisis in America
Top benefits of performance-based engineering
The More Languages You Know, The More Times You Are a Man
Things to consider while writing an Argumentative Essay
Top Ways to Improve Your Academic Writing Skills
Tips to Excel in Creative Writing
The origins of films in the early 19th century
Top career options in Architecture
The Elevator Pitch
Top finance trends 2020
The basic Structure and functionality of robots
The Way to Success
The election system of the President in the United States of America
Two-party System in United States of America
Top trends in urban design
The history and theory of African American filmmaking
Top benefits of creative writing
Tinnitus Guide: Common Symptoms and Treatment Options
The language of dance
The digital image processing management
Top famous politicians of the World
Top methods of political science!
The history of the feminist movement
The blood flow in cardiovascular system - Biofluid Mechanics
The best of Leonardo Da Vinci
The Structure and Function of Macromolecules
The structure of cell: a research on the bricks of the human body!
Tissue and organ construction: Adhesion and recognition between cells
The kinetics of the transformation processes
The Modeling of Biological Systems
Tips for writing a great thesis statement
The Defense mechanisms against infections
The impact of the technological innovations in medicine
Top journalism trends to know about
The relation between mass media & politics
Theranostics: Diagnosis and Care through Nanoparticles
The practical Applications of X-rays
The applications of Ultrasound in medicine
Transfer mechanisms of genetic information in Bacteria
The regulation of cellular metabolism in the diagnosis
The Principles of MRI Contrast agents
The technical basis of optical coherence imaging
The New Media: Emerging Trends
The Structure of Interest Rates and the Yield Curve
Technological perspectives and reflections of neural engineering
Types of bioreactors and their applications
The Role of Government Policy in Improving Economic Outcomes
Types of corporate responsibility
What is a Definition Essay?
What are diagnostic essays?
What is the relation between art structural engineering?
What is a Narrative Essay
What are robotics and intelligence systems?
What are the benefits of studying health sciences?
What is artificial intelligence and why it matters?
What is comparative Literature?
Why study neuroscience
What is Wi-Fi and how does it works
What is French history famous for?
What are Humanistic Studies?
What is covered in Biophysics?
What is modern journalism?
What is Virtualization? Benefits & Applications
What are modern public relations?
What is plasma physics?
What is teacher preparation?
What is rapid prototyping for 3D printing?
What is contemporary European Politics?
Why should you learn American Ballet?
What is engineering physics?
What is the purpose of African American Literature?
Ways to learn the Rhythm
What is digital art used for?
What are Enzymes and how do they work
Who is the father of political science?
Why Study Political Science - Job?
What is the Philosophy of Feminism?
What is a quantum computer?
Ways B2B Startups Streamline Their Conversion Strategies
Why do biomedical signals need processing?
What are the long term effects of climate change?
Why study labour relations
What is Holoprosencephaly?
What is antisocial disorder?
What are the important principles of evolution?
What is the cytoplasm and its function?
What is biopolymers?
What Makes a Good Leader
Women empowerment in modern generation
What is the history of political thought?
What is Gene recombination
What is synthetic biology
What is business cost analysis?
What is Inflation
What are the consequences of unemployment?
What is lithotripsy and its types?
What is transition elastography?
What is the purpose of deep brain stimulation?
What is a Brain-Computer Interface (BCI)
What is neuroethics?
What is Market and Supply and Demand
What is optogenetics?
What are the techniques to record brain activity?
What happens if the interest rate increases?
What is immunotherapy?
What is the economic role of the financial market?
What are the factors behind illegal immigration?
What is the lymphocyte activation?
What is financial market and its types?
What is the structure of financial markets?
What are the methods of measuring business performance?
What is the Credit market?
What is business ethics and code of ethics
What are the Causes of financial instability?
What is MBA with Concentrations