Op-Ed: Perfect Market Conditions

 The Law of Supply and Demand states that when the supply of goods is short, prices tend to go up. It is due to the fact that when supply decreases, it suddenly fails to meet the current demand for the goods, and as a result, there are many people competing for the limited supply of the goods. And the more the bidders, the higher the prices will be.

This relationship of demand and price is known in Mathematics as directly proportional, which means that as demand decreases, the prices also decreases. And as demand increases, the prices also increases.

Supply, in turn, is also very much dependent on the level of prices in the market. When prices are high, and supply is low, producers will produce more goods to add to the supply to take advantage of the high prices to gain enough profit. And as supply increases, it will eventually meet, or surpass, the level of demand. Then, prices will start falling as supply levels exceeds demand.

This mechanism in Classical Economics is called the invisible hand, which stipulates that any disruption in the demand and supply levels will be rectified by the market forces, and will result to a price equilibrium, ceteris paribus.

The mechanism nowadays are considered less reliable, especially during the Great Depression when the market forces failed to fix the prolonged recession. This gave birth to Keynesian Economics where government intervention (called pump priming) was needed to revive the ailing economy.

There are also many factors that now affect consumer behavior. Consumers do not just rely on the low or high prices when making purchasing decisions. Factors such as quality, branding, trademarks, convenience, customer experience, diminishing utility, after-sales service, among others, influence how consumers behave and participate in the market.

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The Op-Ed is sponsored by Windows 11.