What is the theory of supply and demand

1. Supply and demand are the basic relations of commodity economy.

Many categories of the commodity economy can be unified into the relationship between supply and demand. Such as the study of commodity relations of those basic categories: production and consumption, value and use value, goods and money and other opposing concepts. Once they are linked to the market. The actual expression is the relationship between supply and demand. In the study of the general relationship between commodities and value does not involve the market, and therefore is not expressed in terms of supply and demand. Marx pointed out. In the market. "There are only two spheres in opposition to each other: buyer and seller. Demand and supply." "The following relations are reproduced in the supply and demand of commodities: first. The relation between use-value and exchange-value, between commodities and money . The relation of buyer and seller; second . The relation of producer and consumer, although both may be represented by a third party, the merchant."

2. Supply and demand are only two sides of the same coin.

They are both generated by production. Supply and demand which are in opposition to each other are difficult to distinguish from each other. In different ways. Supply is demand. Demand is supply. Production activities that increase supply simultaneously increase the demand for the means of production. . and the demand for the means of consumption due to the increase in the demand for labor; in other words. The demand for production in production can also be said to be supply. Marx said about the meaning of supply and demand. "To give a general definition of the two concepts of demand and supply. The real difficulty lies in this. They seem to be merely tautological": and that both supply and demand are determined by production: "Supply and demand are determined by production itself" . The discursive relationship between supply and demand is well articulated. This dialectical relationship between supply and demand is very instructive for the government to carry out "macro-control" of the economy.

3. Supply and demand are determined by production.

But there is no necessary link between the two in terms of quantity: the real link between the two is "socially necessary labor time". "The portion of total labor that is used by society to produce this good. That is to say, the amount of the production of this good in the total production.... On the other hand, there is no necessary connection between the scale on which society requires this good to satisfy its needs.... . there is no necessary connection . . but only a contingent connection." This shows that . Supply and demand are both determined by production. But supply and demand are not necessarily equal in quantity at all times. The theoretically assumed equilibrium between supply and demand exists only in uneven fluctuations. It exists in the mean. Since "supply" in the market is for value. What is offered is also value. And "demand" is for use value. Value is abstract labor. Although "labor" is spent on the goods supplied, the product is not needed by society. But the product is not needed by society. The supply becomes "ineffective supply". On the other hand. In terms of the natural attributes of human beings. Demand is infinite. But only the demand that has the corresponding purchasing power of money is the "effective demand" that can be realized. Only effective supply and effective demand are recognized in the market. This "accidental connection" between supply and demand indicates that both supply and demand are a kind of social behavior. Reflecting a social relationship; it essentially indicates that under the conditions of a commodity economy, there is an exchange of labor between workers. There is a relationship of exchange of labor between workers. This relationship of mutual exchange of labor is: socially necessary labor time.

4. Supply and demand do not determine value. But it determines price fluctuations.

The relationship between supply and demand is one of the basic relationships of commodity economy. But it does not determine the value relationship, which is the essential relationship of commodity economy. But it has no decisive role. It only acts on the expression of value - price. Prices fluctuate up and down with supply and demand. But price and supply and demand are interactive. The imbalance between supply and demand has a tendency to automatically eliminate the imbalance under the effect of "interaction". The term "tendency" refers to the fact that the elimination of the imbalance between supply and demand is not instantaneous. Sometimes it may fluctuate very strongly. Completely self-regulation will cause damage to the operation of the economy. Need to use external regulation. But because the imbalance has a tendency to recover automatically. External regulation can not violate the basic principle of automatic equilibrium of supply and demand. This principle is the supply and demand and price "interaction", to achieve equilibrium of the final adjustment force from the "value": value movement is the market movement, including supply and demand movement of the real power.

5. The social and class nature of supply and demand.

The social nature of supply and demand is an expression of the social nature of the relations of production. The mode of production determines both the mode of supply and the structure of supply. This structure in turn directly defines the structure of nga demand. "Supply and demand also presuppose the existence of different classes and strata . These classes and strata distribute among themselves the total income of society . They consume it as income. Hence the formation of the kind of demand and supply that is formed by income; on the other hand, in order to understand the kind of demand and supply that is formed by the producers themselves in relation to each other. It is necessary to understand the whole of the capitalist production process". Specifically. The amount of demand depends on the amount of money available in the market for purchase. And this amount of money is ultimately determined by certain relations of distribution. Certain relations of distribution in turn depend on the nature of a certain society and the class position of the consumer. In capitalist private economic relations, the money that the workers, who constitute the majority of the population, can use to buy means of consumption is always only the "value of labor". This is expressed in the distribution of a relatively small share of the total social product. Therefore. This "demand relationship" shows the antagonistic relationship between production and consumption. This is the real reason why Keynes called "effective demand is insufficient".

Neoclassical Economics Supply and Demand Theory

(I) Demand Theory

Western economics puts "demand" in the first place, and the theory holds that there are five main factors determining the demand and supply: firstly, the market price; secondly, the average level of income; thirdly, the market size; fourthly, the situation of substitutes, including quantity, quantity, and quality of the commodity. Fourth, the situation of substitutes of the commodity, including the quantity, variety and price; and fifth, the choice preference of consumers. It is generally assumed that factors other than price are relatively stable and unchanged in a certain period of time and place. Therefore, Nga demand is simplified as a function of commodity quantity and price, that is, the quantity of Nga demand varies with price. The quantity of normal goods (non-Giffen goods) in Nga demand varies in inverse proportion to price. The table of data corresponding to the quantity consumers are willing to buy at a given price is called the "demand table".

The numbers on the table are plotted on a coordinate graph to obtain the "demand curve". With the horizontal coordinates of the amount of demand, the vertical coordinates of the market price; because the amount of demand is inversely proportional to the market price. Listen to the "Nga demand curve" is a curve from the upper left to the lower right inclined (negative slope).

The reason why the demand curve slopes downward to the right is determined by the law of diminishing marginal utility, the first unit of a commodity to be purchased has a greater utility. So consumers are willing to pay a higher price, and then each additional unit, its "marginal utility" is "decreasing"; when the quantity is very large its marginal utility is very small. Consumers are willing to buy only at very low prices. When an individual consumer consumes several goods at the same time, subject to the constraint of disposable income. It chooses among several goods according to the principle of "diminishing marginal utility". When the utility of the last unit of each good consumed is equal. The total utility of the consumer is maximized. This total utility maximizing behavior of consumers constitutes "consumer equilibrium".

(2) Supply Theory

There are several factors that determine supply: first, market price; second, production cost. The reason why producers supply goods is to make a profit. Profit is the difference between benefits and costs. At a given price, the lower the cost, the higher the profit margin; and the greater the amount of the good that the producer 's rage to supply. The opposite is true, the smaller it is. Third. The price of the factors of production. It varies inversely with the quantity of the commodity which the producer is willing to supply: fourth. Changes in the prices of other commodities Higher prices of other commodities induce producers to switch to other. Lower prices of other commodities induce others to switch to their own field. In addition, natural disasters, wars, and other emergencies tend to reduce supply.

Similar to demand, it is generally assumed that other factors remain relatively constant. Only market prices move with supply. Normal commodity prices and supply are positively proportional to the change, the higher the price the greater the supply, the lower the price the less supply. The quantity of goods that producers are willing to supply at a given price is listed in a table. Known as the "supply table":

Similarly, the supply table will be plotted on a coordinate graph of the number of "supply curve". Since the quantity supplied is directly proportional to the market price, it is a curve that slopes from the lower left to the upper right (positive slope). The production behavior of individual producers, subject to the constraints of the amount of capital that can be invested, determines the size of the investment according to the principle of "maximizing the total amount of profit". Due to the law of diminishing marginal returns, the producer chooses to stop at the point where the marginal return equals the marginal cost. This is called "producer's equilibrium".

(3) Market Equilibrium

Analyze the demand and supply situation at the same time. Place the demand curve and the supply curve in the same coordinate system, and the intersection of the two curves is the market equilibrium point. The price corresponding to the equilibrium point is the market equilibrium price, in other words. The equilibrium price is determined by the intersection of the demand curve and the supply curve. The output corresponding to the equilibrium price is the equilibrium output. In other words, the output corresponding to the equilibrium price is the equilibrium output, i.e. the output at which demand equals supply. If production takes place at a point of disequilibrium. The price will be higher or lower than the equilibrium price.