To understand what modern market relations are, it is necessary both in order to be able to objectively assess the economic condition of the state, and for a competent approach to forming an enterprise development strategy.
What is a market?
Under this term is one of the most significant economic achievements in the history of mankind. Since how many thousands of years ago the market got a more or less clear form, it has been constantly changing and developing.
If you try to give a broad definition of this phenomenon, it makes sense to talk about economic relations, which involve the exchange of goods and services with the subsequent formation of demand, supply and prices.
Giving a narrow definition, the market should be understood as an institution that provides a mutual relationship between producers and consumers.
It is important to know that there are laws of market development that have a significant impact on the state of the economy of various states. And if you use them correctly, then you can effectively adjust economic processes.
Growing needs
Market laws include such a pattern as the constant growth of human needs. In fact, this is an objective scheme for the development of society, under the influence of which there is a change in structure (a guide to quality) and an increase in the varieties of goods and services offered to consumers. This process can be described as positive, since it helps to improve product quality and more fully saturate the market with relevant positions.
The volume of services and goods, as well as their quantity, doubles approximately every 10 years.
Demand
Studying the laws of the market, you need to pay attention to demand. This term should be understood as a form of expression of the needs of customers on the market. At the same time, it is provided with appropriate cash. In other words, demand is the need of the buyer, who has the money necessary to purchase specific services and goods. It is important to understand the following fact: the higher the price for a certain good, the fewer buyers will show a desire to purchase such a product. It is this dependence of consumption on pricing called the "law of demand."
This pattern determines the existence of a negative relationship between the amount of a specific good that consumers will buy and the price of it.
What factors influence demand
If you objectively evaluate the laws of the market, it is worth noting that in practice, demand is influenced by some factors:
- The presence of analogues (substitutes). If the buyer has the opportunity to choose among several products or services that have similar properties, he can give preference to a particular brand because of personal loyalty to it, not related to price.
- The size of the market for a particular product. When there are regular receipts of a certain product, and the level of its consumption is constantly increasing, then buyers expect that they will be offered a more reasonable price.
- The psychological factor. The tastes of customers are actively influenced by the social environment. For this reason, people with different levels of material wealth will be focused on different groups of goods and services. An individual scale of values and needs plays a key role in this situation.
- The level of income in society. The economic laws of the market state that the place of a certain product (carrots, potatoes, etc.)n) in the structure of purchases will change in accordance with the increase or decrease in income.
- Season. This factor affects the relevance of various product groups. As a vivid example of such an influence, we can cite the demand for warm clothes and tea.
- Fashion. Changing trends in clothing and more. Significantly affects the level of demand.
Sentence
There is a law of market supply, the essence of which is to describe the behavior of producers of goods on it, characterizing the change in the price of products after changing the supply of this product.
In other words, higher prices will encourage manufacturers to saturate the market with a large number of specific products. But if due to certain processes the price of the goods will need to be reduced, then it will become unprofitable for suppliers to offer this group of goods in a certain market, and its offer, accordingly, will decrease.
In fact, the proposal reflects the amount of product that the manufacturer intends and is able to produce and subsequently sell. That is, this indicator clarifies the fact at which prices enterprises will be ready to saturate the market with a certain amount of goods.
What affects the offer
The key factor that influences supply is production costs, which depend on the prices of technology and resources. For example, at a low cost of resources, expensive manufacturing technologies will lead to high costs in the process of releasing goods. With regard to high prices for resources, this factor can raise the level of costs above the price category established in the market. This will inevitably lead to lower supply.
The volume of output is also influenced by scientific and technological progress. We are talking about a significant reduction in production costs through the introduction of high technology. The consequence of this process is an increase in supply.
As another factor affecting the degree of supply, one can determine the level of monopolization of the market. In this case, prices will change even with low-cost production technologies. With monopolies, pricing flexibility is lost.
Supply and demand
In this case, it is worth paying attention to the balance of these two laws. For this state of the market is characterized by a coincidence of the level of supply and demand for a specific group of goods.
In fact, there is always a desire for equilibrium in the market, as it is beneficial to both producers and consumers. When supply and demand do not match, this can lead to a shortage of goods. This regularity can be explained by the fact that the value of the product is below the equilibrium market price. As a result, the demand for goods rises, which leads to a shortage and a subsequent increase in prices.
Another scenario is possible, which has the name of commodity surplus: the price of the proposed product is higher than the equilibrium market value. In this case, demand will decrease, and the manufacturer will be forced to reduce production volumes. To restore previous performance, the company will need to lower the price.
Thus, the law of equilibrium of the market can be defined as a very important factor that has a significant impact on the state of the economy.
Competition
This term should be understood as the rivalry of those companies that produce the same products. Such rivalry has a logical goal - to attract a potential buyer to a particular brand.
The law of market competition is very important because it provides the conditions necessary to achieve economic efficiency of production and maximize profit. Under the influence of this law, expensive products that are of poor quality are supplanted from the market.
It is worth noting that enterprise rivalry is one of the key concepts of a market economy that justifies a capitalist approach to the production process. Moreover, for the successful implementation of this scheme, high-quality work of antitrust legislation is necessary.
Competition Law Functions
In order to better understand the essence of this economic law, it is necessary to pay attention to the role that competition plays in the processes of a market economy:
- Pricing. This feature is one of the key. Its essence is that competition affects the level of production costs, regardless of the group of goods. It is this factor that ultimately determines the equilibrium market price of products.
- Stimulation. Due to the fact of active competition, manufacturers are forced to use new technologies, develop more relevant forms of labor organization, expand the range, constantly work on product quality and pricing.
- Regulation. In this case, we are talking about redirecting capital from low-income sectors to current areas of activity. This allows you to achieve a balance between social needs and production.
- Differentiation of commodity producers. The competition process naturally separates progressive production from inefficient. The bottom line is that, thanks to the law of competition, favorable conditions are created only for those companies that use production resources as efficiently as possible to achieve the best results.
- Control. The essence of this function is reduced to the process of controlling the competitiveness of each company.
Obviously, market laws are an integral part of a successful modern economic model.
