There are insanely many different entrepreneurs in the world who are engaged in completely different types of activities. How do they manage to keep their business and what laws do they follow? The laws of the market, the law of demand and other factors of the organization's development are our current topic. This article will discuss a very important law, the observance of which helps entrepreneurs to stay afloat.
More on demand
The law of demand, which many organizations are actively using, does not seem so complicated at first glance. It all depends on the price of the product; it sets all the conditions for supply and demand. So, we have reached the very law of supply and demand. It lies in the fact that the lower the price of the goods, the lower the supply and higher demand for it. However, quite often it can be noted that the modern economy does not imply such a strong dependence of all these concepts on each other.
To give an example: the price is decreasing, but demand has still not risen, or rose to a negligible level. Meanwhile, the proposal does not change its activity at all. Or another example: prices are rising, but demand remains the same. Thus, the concept of elasticity of supply and demand was introduced in the economic world. It shows how supply and demand adapt to market conditions.
In addition, with the introduction of new concepts, the appearance of exceptions is quite natural. Sometimes such exceptions show completely unusual results for the current economy. For example, a product is gaining active demand, but who would have thought that this indicator is associated with a constant increase in prices? Or, conversely, with lower prices, the volume of these products on the market increases.
What is the reason for such an unexpected reaction? Below are a few examples of what is causing these situations. Speaking of elasticity, every entrepreneur and businessman needs to remember that he can remain competitive only with proper study of the elasticity of his products. This also applies to marketers. These people need to know absolutely everything their consumer needs. And also to understand such concepts as market laws, the law of demand and the law of supply.
Demand: Examples
Let’s figure out what demand means. This is an economic concept, which implies a certain amount of products that consumers want to get on the market at a certain point in time and in specific conditions.
It is the essence and importance of the product, as well as the solvency of the consumer that determines the demand. Everyone who is involved in the economic sphere or runs their own business needs to correctly understand what demand means and how it affects the company's activities.
Demand can cover not only the product itself that has already been bought, but also the need for it. Thus, even if purchase and sale transactions were not completed, demand may still be present, because to some extent this product is needed by a certain number of buyers.
Demand activity
There is such a thing as demand activity. Several factors influence it: the current moment, month, week, day, and even year. Simply put - seasonality. The activity is also affected by some characteristics of products, food products, electricity, fuel for used vehicles, clothing, household appliances and many others.
That is, at a certain event - a reduction in prices - there is an increase in demand for goods, according to the law described earlier. It is important to note that in this law it is quite easy to make an analysis of the income of the buyer. If the price is two times less - the goods can be bought two times more, respectively. As already mentioned, in the economic sphere, in practice, the basic concepts of the law of demand are often violated, thereby creating more and more types of exceptions. Here are a few examples:
- Higher product prices can sometimes not completely reduce demand. On the contrary - even stimulate. This happens if you expect a rise in market prices. And all because the buyer expects the greatest possible increase in prices and is in a hurry to buy products, while it still has an "extremely adequate" price. However, this phenomenon can easily work in a different direction.
- If the value of a product decreases, it can easily lose its sales activity. In addition, demand will continue to decline after a given situation. Why is this happening? The law of demand for goods suggests that it is impossible to reduce the price of a product if it is the main indicator of quality, necessity and demand. Gold can be an easy example - if you constantly wait until the price drops, the need for gold may disappear.
- Take as an example also precious metals and stones, brand perfumes and so on. If you reduce the cost, they will certainly lose their necessary sales volume, as well as the demand and sales level will decrease. The exception is that when the buyer significantly increases income, he no longer needs to buy these things. Thus, even such expensive products may have absolutely no competition against each other, because they depend on the consumer.
Elasticity in demand
Demand elasticity is a reaction to changes in some demand factors. This concept was introduced into the economic sphere by the famous French philosopher, but above all the economist and mathematician, Antoine Auguste Cournot. He did analyzes on various models regarding the interaction of demand and prices. He decided to note as important that, with significant changes in pricing, demand practically does not suffer, unless there are completely imperceptible fluctuations in it.
For example, the violin and telescope of an astronomer are currently quite expensive. But is it worth it to cut the price by half, say, if this does not increase the sales for the violin or this telescope? Unless quite a bit, some will still need to buy these things. The law of demand, demand, demand factors - all this directly affects the above examples.
As an opposite phenomenon, you can easily give an example with firewood. Firewood is critical material for all of us. If you raise the price by two or even three times, the sale of wood will not decrease at all. Yes, prices for wooden products will be much higher, but this is the product that customers need. Thus, we see that products can be considered luxury or belong to essential goods. Of course, from the time of Cournot, other properties have been found that may and may not affect the demand for goods. We give two examples.
- Substitute item. We often turn to various forums in an attempt to replace the finished flour or butter. Do you have semolina and margarine? Great, you have found a substitute for flour and butter. This leads to the appearance of elasticity of the product.
- But such products as salt, tobacco, drinking water, we can not replace anything. In this case, the product completely excludes the presence of elasticity.
It can be concluded that the product may or may not be elastic, that the price does not always affect demand and that sales will be directly dependent on demand.
Consumer Expenses
In this matter, we again encounter the concept of elasticity. But now we will talk about the relationship of this indicator with spending spending.
Some products require large investments, that is, high costs on the part of the buyer. In this case, demand will not be elastic. In a situation where demand is elastic, the consumer will not experience too much spending.
The market law of demand suggests that if the product is cheap, then demand is elastic, if not, it is not elastic.
In general, the buyer’s income can reduce the activity of sales of minor goods. Yes, the volume of goods is reduced, but the income of the buyer as well.
Product Profile
The purpose of the goods can be different - it can satisfy the needs of customers, which is directly reflected in demand, but it can also happen vice versa. Here is a simple example: some drugs are in high demand due to their high cost. Only the price will fall, demand will drop sharply, as the demand for it will not be so high. Such factors are often displayed on the products that are used for industrial purposes. The magnitude of demand, demand, the law of demand - these are the reasons for these factors.
Modern industrial organizations are actively studying elasticity in demand. This helps them to choose the right benchmark in their market. They need to have information on what products to produce, how much, when and when. Naturally, the business is not complete without marketers whose task is to actively disseminate information about the products that came out. However, a common mistake many marketers make is trying to inelastic the demand for an ad product.
Exceptions to the Law of Proposals
In the economic sphere, there is an additional concept - the proposal. Let's discuss what it is.
An offer is a certain quantity of goods that sellers want to sell in a particular market at a certain period under certain conditions. At the same time, the offer may not concern goods that were not produced for the purpose of sale.
Say, a farmer, producing a certain amount of production, he can leave part of it to himself. This will not be considered an offer. And in the event that another part of its products goes to the market - to sell - this will be the offer. The law of demand expresses that the volume of supply always depends on time and current moment, a certain period of time.
The offer is currently made up of available goods. And for longer periods of time, goods are included whose production or removal from warehouses is for sale. The main source of supply is production, and the most important factor is, of course, price.
For example, a price is possible at which the finished product is not offered, but is in stock until a more favorable price is established. The law of supply and demand is that rising prices for a product increase supply, and low prices, on the contrary, lead to its decrease. This stable relationship reflects the impact of the value of goods on their supply. But, as in the law of demand, the law of supply also has exceptions.
Let’s take monopsony for the best example (this is when there is one consumer among the many sellers on the market), in this case we see increased competition among sellers and at the same time low prices. At such moments, sellers try to compensate for low prices with high volumes of product sales. It is also necessary to note the criteria that affect the growth of commodity volume. This is a factor of available resources that are needed for the production of goods offered. With an increase in the price of products, but the lack of resources for its production, volumes can rapidly fall. The law of demand, demand, the demand curve affect volumes as well.
For example, after weather conditions, apricot crops disappear. The price rises, but there are practically no offers. And all because the activity of supply and demand is also affected by the production technology of these apricots. For example, marine cargo tankers have rather high production costs, and they are produced individually, and ball pens have low production costs, which means that they are produced in large quantities.
Elasticity of offer
We have already talked about the elasticity of the proposal, but let's look at what it represents in more detail.
The elasticity of the proposal is the change in the number of proposals depending on the factors that influence this proposal.
Say, a large quantity of a certain product is an indicator of the elasticity of supply and vice versa - a small quantity indicates low elasticity.
High production costs indicate a weak elasticity of the manufactured goods. It is important that the high production costs of products provide an opportunity for other products to enter the market with the use of new products that help reduce costs in the production of the same goods.
The transport system also plays an important role in determining the elasticity of supply.
The reaction of the manufacturer and the buyer
The factor of some periods also indicates the elasticity of the proposal. Any offer is inelastic in a period that is short-lived. Producers always respond to price changes much more slowly than buyers. Everyone knows that products that quickly deteriorate are sometimes sold even below cost. This is because, if they are not sold, the business will suffer a little more damage.
But the reaction to a change in supply is much slower than for demand. A very important feature here is that entrepreneurs who quickly respond to changing pricing policies have a much greater advantage over others.
