What Is the Law of Supply and Demand?

Law of supply-demand refers to the inevitability of the mutual constraint between the supply and demand of goods and price changes. It is the law of the commodity economy. There is a certain proportional relationship between the supply and demand of goods. The basis is The amount of social labor required to produce a commodity must be commensurate with the demand for it in society. The relationship between supply and demand is the unity of opposites between supply and demand. The law of supply and demand is the basic principle of the change in supply and demand.

Law of supply and demand

The law of supply and demand refers to the inevitability of the mutual constraint between the supply and demand of goods and price changes. It is the law of the commodity economy, including the following:

1. Changes in prices caused by changes in supply and demand

Supply exceeds demand and prices rise. This trend of oversupply will cause prices to rise.

The relationship between the supply and demand of commodities in the market and its relationship with commodity prices. The relationship between supply and demand is the unity of opposites between supply and demand. The law of supply and demand is the basic principle of the change in supply and demand.

The law of supply and demand refers to the inherent inevitable link between the supply and demand of commodities and price changes.

On the one hand, the supply and demand of commodities affects price changes:

1. The supply of goods is constant, and the increase in demand will cause the price of goods to rise, otherwise it will cause the price of goods to fall.

2. There is a certain demand for goods, and an increase in supply will lead to a decline in the price of the goods, and vice versa.

3. The supply and demand of goods increase at the same time. The increase in demand for goods faster than the increase in supply will cause the price of goods to rise, otherwise it will cause the price of goods to fall, and the simultaneous increase of the two will not affect the price change.

4. The supply and demand of goods decrease at the same time. The decrease in the demand for goods faster than the decrease in supply will lead to a decline in the price of the goods, otherwise it will lead to an increase in the price of the goods, and the simultaneous reduction of the two will not affect the price changes.

On the other hand, changes in commodity prices will also affect the supply and demand of commodities:

1. Rising commodity prices will cause an increase in supply and a decrease in demand.

2. Falling commodity prices will lead to increased demand and reduced supply.

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When the law of supply and demand is more fully effective, all price differences are parallel, and when the law of supply and demand is less fully effective, all price differences are scissors (that is, the Matthew effect). Explaining the four relationships in the law of supply and demand, although not helpful in demonstrating the law of price difference, is important for analyzing the evolution of price difference. The true balance of supply and demand means that the four relationships are balanced, and the regulating effect of the law of supply and demand can only be exerted when the four relationships are not too imbalanced, otherwise its role is diminished and even invalid.

1. Supply and demand competition. This relationship refers to the relationship between the competitiveness of supply and demand. Since the driving force behind the regulation of the law of supply and demand is from competition, the premise of the law to play a role is the equilibrium of competitiveness-that is, the degree of competition between the seller and the buyer is equal. If there are 10 sellers and 11 buyers, the competitiveness of the two parties is not equal. The seller of antiques is almost uncompetitive, and the buyer is very competitive. Grain is very competitive for the seller. The buyer (grain station) is very small due to the small number. The competition between supply and demand between workers and capitalists is also very imbalanced, and monopoly is a typical severe imbalance between supply and demand. When talking about the degree of competition, it should be specified whether it is the seller or the buyer. It can no longer be vague and general as classic theory.

2. Supply and demand quantity relationship. This relationship refers to the relationship between supply and demand, which is a commonly recognized relationship. If the supply and demand are severely out of balance, the role of the law of supply and demand will diminish and become ineffective. For example, the fluctuation of the price of antiques cannot be explained by the law of supply and demand; the price fluctuations of food when there is a serious shortage of food will not obey the description of the law of supply and demand.

3. Supply and demand response relationship. This relationship refers to the relationship between the supply and demand sides' response to the market (mainly price). If one side responds particularly sensitively, while the other side responds slowly, the role of the law of supply and demand diminishes or becomes ineffective. Generally, buyers are slow to respond to products with strong consumption stability (small flexibility) and low prices, while sellers are slow to respond to products that are difficult to change production and difficult to change the scale of production. In China, the reaction speed of grain production and consumption is seriously unbalanced. Farmers are too slow to respond to the market, and the demand side is too fast to respond to the market. Therefore, farmers ca nt respond, and they have to respond to changes. Another example is the change in the price of needles, buttons, buses, and low-cost medicines, which makes it difficult to change demand. In today's rapid economic development, the imbalance between supply and demand response has a greater impact on the economy, which directly destroys the foundation of existing economics. The prices of everything necessary for survival, such as water, salt, food, housing, and energy, such as allowing supply and demand to be regulated (that is, left to the market), can easily cause chaos in the world.

4. Supply and demand time relationship. This relationship refers to the relationship between supply and demand in time. Examining this relationship is mainly carried out from the perspective of the large cycle of "production circulation consumption production". Supply and demand time equilibrium means that supply and demand (or consumption) are synchronized in time. If they are not synchronized, no one will sell when they are sold, and no one will sell when they are sold. The analysis of this relationship is more complicated. Grain belongs to the "equal supply and demand" relationship. Grain supply is concentrated in the three months of June, August, and November, and the consumer is consuming uniformly for many years. In this way, farmers are always lacking and the driving force for demand, which is consumption, and thus always show oversupply. In this way, even if the total supply of grain is insufficient, as long as it is not particularly insufficient, grain farmers will always face oversupply markets.