Tashkent University of Humanitarian Sciences

2nd-year student

Sobirova Iroda Аbdulaziz qizi

U🇸 Article Package: Supply and Demand: The Core Mechanism of the Market Economy

Abstract 

This article is devoted to a comprehensive analysis of the laws of supply and demand, which are the main driving force of a market economy. It examines in detail the theoretical foundations of both categories, the curves that reflect them, as well as the price and non-price factors that influence them. The central part of the study is devoted to market equilibrium, analyzing the formation of this equilibrium, the changes in equilibrium price and quantity (curve shifts), and the impact of government intervention (such as price controls) on the equilibrium from a scientific and practical perspective. The article aims to reveal the crucial role of the supply and demand mechanism in ensuring modern economic stability.

Keywords: Demand, Supply, Market Equilibrium, Equilibrium Price, Demand Elasticity, Market Mechanism, Price Formation.

Detailed Article Structure (Intended for 5 Pages)

Introduction

• Relevance (Dolzarblik): The supply and demand mechanisms as the fundamental idea of the market economy.
• Objective (Maqsad): To analyze the laws of supply and demand, and to determine their role in price formation and ensuring economic efficiency.
• Tasks (Vazifalar): 1) To justify the laws of supply and demand; 2) To illustrate market equilibrium graphically and functionally; 3) To study the practical consequences of the theory.

Theoretical Foundations of Supply and Demand

1. The Law of Demand and Factors Affecting It

• The Law of Demand: The inverse relationship between price and quantity demanded (under the Ceteris Paribus condition).
• The Demand Curve (D): Reasons for the downward slope of the curve.
• Non-Price Factors: Consumer income (normal and inferior goods), tastes/preferences, prices of substitute and complementary goods, expectations.

2. The Law of Supply and Factors Affecting It

• The Law of Supply: The direct relationship between price and quantity supplied.
• The Supply Curve (S): Reasons for the upward slope of the curve.
• Non-Price Factors: Production costs, technology, taxes and subsidies, prices of other goods.

Market Equilibrium and the Price Formation Mechanism (1.5 Pages)

1. Determining the Equilibrium Point

• The intersection point of the Demand (D) and Supply (S) curves (The Equilibrium Point).
• The Equilibrium Condition: $Q_D = Q_S$.
• Graphical Analysis: Equilibrium Price ($P^*$) and Equilibrium Quantity ($Q^*$).

2. States of Market Disequilibrium

• Excess Supply (Surplus): When the price is above $P^*$ ($P > P^*$). The market automatically returns to $P^*$.
• Excess Demand (Shortage/Deficit): When the price is below $P^*$ ($P < P^*$). Price increases due to competitive pressure.

3. Shifts in Equilibrium (Comparative Statics)

• New values of $P^*$ and $Q^*$ resulting from shifts in the Demand (e.g., change in income) or Supply (e.g., change in cost) curves.
• Simultaneous shifts of both curves (ambiguity of the outcome).

Practical Significance of the Supply and Demand Theory

1. The Concept of Elasticity

• Price Elasticity: The responsiveness of quantity demanded and supplied to changes in price.
• Practical Application: The role of elasticity in firms maximizing their total revenue.

2. Consequences of Government Intervention in the Market

• Price Ceiling (Maximum Price): For example, rent control. Consequence: Artificial Shortage (Deficit).
• Price Floor (Minimum Price): For example, minimum wage or minimum prices for agricultural products. Consequence: Artificial Surplus (Profitsit).

Conclusion

• Brief summary of the main results studied.
• Supply and demand as the most efficient mechanism for resource allocation in a market economy.
• Suggestions regarding the importance of government intervention in cases of market failure (externalities, monopoly).

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List of References (Foydalanilgan Adabiyotlar Roʻyxati)

1. Mankiw, N. G. (2021). Principles of Economics. Cengage Learning.
2. Samuelson, P. A., & Nordhaus, W. D. (2010). Economics. McGraw-Hill Education.
3. Oʻlmasov, A. (2009). Iqtisodiyot nazariyasi (Theory of Economics). “Mehnat” publishing.
4. Karimov, I. A. (2000). Oʻzbekiston XXI asr boʻsagʻasida: xavfsizlikka tahdid, barqarorlik shartlari va taraqqiyot kafolatlari (Uzbekistan on the Threshold of the 21st Century: Threats to Security, Conditions of Stability and Guarantees of Progress). “Oʻzbekiston” publishing. (As a source on the state’s economic policy).
5. Fisher, S., Dornbush, R., & Schmalensee, R. (2011). Economics. McGraw-Hill.
6. Smith, A. (1776). The Wealth of Nations. (As a source providing the classical economic foundation.)
7. Journal Article (Example): Stiglitz, J. E. (2017). Rethinking the Role of Government in the Market. Journal of Economic Literature, 55(3), 112-130.