Importance of the Supply and Demand System

The great importance of this system in the economic model and by which commercial operations are governed lies in that fixes the price of any good or product, through the combination of these two basic tendencies in the consumption. On the one hand, the offer, the quantity put up for sale by the offeror (the party that sells), and on the other hand, the demand, money that consumers (buyers) are willing to offer in the acquisition of the good commercialized.

This is a system that is used in the models of free market or capitalists to determine the value of the things that are the object of the purchase, not only materials, but also certain operations financial: the purchase and sale of shares on the stock market and other assets from variable income, under the axiom that if a Well, it has "that" price, it is because it is the one that is really worth at that precise moment and according to the variations that both present. factors.

Under these parameters, it is presented as a commercial and economic model by trying to give a logical and understandable explanation of price fixing. In this sense, it should be noted that its implementation helps the behavior of the market, in the same way that when there is a certain distortion between both variables can cause an inflation scenario, or even worse, deflation if it is accompanied by recession economic.

On the other hand, one of its most notable effects on economic relations derives from the fact that it constitutes a very powerful tool to cancel (or minimize) the distortions that can be generated in the market, providing a greater stability to it.

How do supply and demand match?

Under this simple scheme, a process is set in motion in which commercial relations are regulated in a more objective manner. However, for a better understanding it is necessary to know how this equation can vary between the two trends in consumption. Well then, and as far as the law of supply is concerned, the higher the price of the product or goods in question, the greater They will also be the possibilities that there is a greater number of units put up for sale by the marketers or dealers. At the same time that the law of demand is governed in the opposite direction. In other words, the higher the prices for the products, the less interest will be generated by the recipients or users.

This analysis, if put into practice, will indicate that, for example, the sale of television with very expansive prices will imply less demand by potential buyers. Just as it will logically imply that there is a much larger stock of this item. Another example to better understand this system is the following: if the price of bread is very low and on the other hand the possible buyers require more quantities than what is offered in the market, a scenario of scarcity of this food can be reached essential. As a consequence of all this, the plaintiffs themselves will tend to be willing to pay a higher amount for their purchase. In other words, if the price of the good increases, it will eventually lead to a decrease in its consumption.

In any of the cases, in this system a very particular scenario can be reached, which is called equilibrium price. What does it basically consist of? Well, in reflecting the level to which users would be willing to take their decision in the acquisition of the good. Although this equilibrium point can become the most desired scenario for economic relations. Although it is not always fulfilled, far from it.

Advantages in your application

To begin with, it is a model that allows for a greater competitiveness in prices. And as a consequence of this action, the consumer will be able to enjoy the possibility of opting for goods or products with a more adjusted rate for his interests, that is, with more proposals. within the same good, in the same way that it will generate that the markets themselves dictate their valuation and not other agents external to the commercial process or even to the decision of the offerer.

Also, it should be appreciated that it enables a greater participation of the agents integrated in the process. Likewise, it will give the guidelines to know what the price of the good is and if it is really interesting to formalize the purchase, at the same time that will provide a greater market equilibrium, and in any case much superior to other manipulated or controlled.

While, on the other hand, one of its greatest contributions to the free market economic system is that it is a really effective strategy. to avoid monopolies within a commercial sector, as well as to avoid unfair competition in the commercialization of products or services, with a very clear relationship, therefore, with the liberalism economic.