Economics is a science that studies commodity-money relations in society. Thanks to her, we can buy the goods we need, use the services, make a profit and invest in infrastructure development. The main “whales” on which all this complex mechanism rests are supply and demand. In the economy, their ratio and the size of existing proportions are analyzed with special attention.
What is an offer?
The answer to this question is not difficult to find, you just have to look into the specialized literature. It states that the supply economy is a process that involves the supply by entrepreneurs of their goods to the market. Their number directly depends on the ability and desire of businessmen to do their job, as well as on the availability of consumers who are not opposed to purchasing a particular item. Moreover, the price of the proposed product is strictly determined by the laws of a market economy, the presence of competitors, the level of GDP in a particular country, adopted state acts, as well as other factors.
The supply also depends on the size of production and the technologies involved. This is very important in the economy, because the above two components characterize the entrepreneur's ability to work. It is also necessary that the businessman not only can, but also wants to produce goods. Thus, he should have a desire, namely permission to sell at a specific price, as well as the opportunity - the availability of necessary resources and capital to start production.
Supply and demand
They are closely related. If supply is an aggregate of goods in the economy, called a market fund and released like hot cakes to consumers, then demand is the desire of the buyers themselves to purchase this thing. The ratio of the two components greatly affects the change in the proportions of production, the movement of labor between sectors, the attraction of capital and its distribution. When demand exceeds supply, the cost of goods and services increases , businessmen receive good dividends. To satisfy the needs of people, they increase production: as a result, demand is satisfied.
If the offer dominates, then entrepreneurs suffer losses: people are not interested in acquiring goods, while competition in this case is often great, while prices are rapidly falling. Despite this, supply always generates demand. Their harmonious correlation is a guarantee of an effective economy, a normal standard of living in the country. The greater the demand, the higher the price. But entrepreneurs are not interested in too high a cost: it is easier for them to leave it at a normal level, but at the same time expand production and, at the expense of this, make big profits.
Supply economics theory
It was developed by those economists who actively studied supply and demand in the economy. Representatives of the theory are Arthur Laffer, Martin Feldstein, George Gilder. The very term "supply economics" was coined by the American Herbert Stein. According to these scientists, in order to improve production in the state, one should pay attention to aggregate supply, while ignoring demand. Indeed, stimulating the growth of the latter does not guarantee good long-term results.
The theory of the economics of supply carries the basic idea: it is necessary to maximize the factors that influence the mass production of goods. Its representatives call the proposal the main motivator for the growth and prosperity of the economy. Their conclusions are based on the law of the markets of the French specialist Jean-Baptiste Say. According to his statements, the main thing is the production of goods, and purchasing power always arises in the process of releasing products to the market. Opponents of the theory of supply - adherents of the Keynesian hypothesis - on the contrary, extol demand and recommend encouraging it.
The main types of offers
Demand and supply in the economy are always oriented towards the desire and possibilities of a simple buyer. They can be measured both on a narrower and wide scale. Depending on this, two types of sentences are distinguished:
- Individual. This is a product of one particular seller, company, organization.
- The general. This refers to the totality of all goods of a particular sector of the economy, released by all, without exception, businessmen engaged in core activities.
It can be argued that these two species always obey the rule that economists have formulated. The so-called law of supply says: with an increase in the value of a product, its supply also rises. At the same time, it is worth remembering about resources: if their use reaches its maximum, price increases will not be able to increase supply, and with it production. Businessmen need to pay great attention to the procurement of materials, their proper distribution and the most economical use.
Price factors
In order for firms or organizations to be able to produce goods unhindered and in large volumes, several factors must be taken into account that directly affect production. Firstly, it’s the value of the thing itself. The higher it is, the less you need to sell. A small percentage of people can pay a tidy sum for a purchase, so the offer should not be large. At the same time, the low cost of the goods allows you to purchase it for virtually every person. Therefore, production in this case should be increased.
Secondly, the cost of resources also takes into account the economics of supply. This means the following: the more expensive they are, the more the price of the goods rises - accordingly, the sales volume must be reduced. Despite this, the proposal will always remain flexible. If the incomes of the population are growing rapidly, the standard of living in the state is increasing, then even with a high price for the product itself or the material from which it is made, production can be increased. Moreover, experienced businessmen do this gradually, focusing on the demand from the population.
The main non-price factors
They primarily include production technology and all the same resources. After all, these two factors are decisive in the economy. For example, technology. The degree of its development invariably increases the level of return on resources - that is, for one expenditure of material you can get more products. For example, the consequence of the active introduction of the production line is a higher output of the required products per worker. It turns out that with an increase in the level of technology, the quantity of goods also grows. The offer is also rising. However, this factor has almost no effect on those things that are hand-made.
As for resources, their scarcity also forms the size. The economy offers this also provides. Rare materials cannot serve as the basis for a large number of goods. A businessman buys such materials at a high price: in the end, he increases the cost of the product itself. In this case, the offer should not be high, otherwise material investments in the product will not pay off due to low sales.
The value of taxes and producers
They also strongly influence supply in a market economy. It is clear that the entrepreneur’s profit also depends on the size of taxes. In addition, in order to compensate for losses from levies, a businessman is forced to raise the cost of goods - this factor is most significant for those products that are taxed too much. For example, alcohol and tobacco products - in order to reduce their consumption and save the health of citizens, or fur coats - to prevent the extermination of rare animals.
The economy of supply is also a focus on the number of producers. The higher it is, the more the offer will grow. In this situation, it is necessary to take into account the reserves of resources: they will rapidly decline. Businessmen will start using more expensive materials, as cheap ones are quickly bought up by competitors. Or import them from abroad, which will also increase costs. It will become unprofitable to sell such products at the previous price, so the supply will not increase.
Other non-price factors
The offer also varies depending on the expectations of citizens regarding future prices, possible raw materials, tax rates. For example, farmers may temporarily stop selling potatoes, expecting that their value will soon increase significantly. The opposite effect is also possible: manufacturers will increase momentum, predicting an increase in the price of products. This factor is difficult to calculate, so it is rarely taken into account in the economic model.
Important and the value of other goods, as well as the offer of money. In economics, this means that entrepreneurs are constantly looking for the most profitable area for investing. When the price of a particular product rises, it becomes attractive for investment - capital flows in. It turns out that this non-price factor is also very important: if the cost increases, there is an outflow of money into the sphere of production, the supply of a particular product is significantly reduced. All this must be taken into account in order for the economy to flourish, and demand and supply harmoniously complement each other.