Market Dynamics is a basic concept for supply, demand and pricing economic models. When there is continual changes in the supply and demand of a product or a group of products in a given market, the price signals are created. The specific changes in the supply and demand of a product or a group of products forces a corresponding change in other and hence due to these variances the pricing signals are created. Market dynamics describes these dynamic price signals.
In simple words,
Market dynamics determines :
• When price increases, how consumer react
• Supplier’s reaction to the change in demand
• Changes in one supply-demand relationship affects the other product and consumer groups
The relationship between supply and demand is the principle force behind setting prices of goods and services. For example: there is a demand of product X in the market. Hence the price of X increases and the quantity also increases to meet the increasing demand. Hence there is a simultaneous increase in the supply of the product. Product X’s market price should now return to the former level prior to the increase as the supply meets the demand.
A single entity or group does not have a significant effect on the market . It is a result of collective market resources and preferences. In open markets, significant part of market dynamics is beyond the control of group or firm.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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