Demand and Supply in the Services Market


An essential component of the structure of the commodity market is the services market. Service is a particular consumer good, which is expressed in a practical effect that satisfies the needs of a person or society. The peculiarity of the service as a commodity is that it is valuable not as a material thing but as an activity. Therefore, the consumption of services coincides with their production process, with activities, and they cannot be stored or transported as goods. The signification of the service as a property defines the characteristics of the representation of supply and demand in the services business. Request for services is formed mainly under the impact of the cost factor and depending on the potential benefit to the client that can be achieved by the buying of services.

The level of economic development of society, its culture, which accordingly defines the formation of supply, plays a principal role in the rise of demand for a particular service. Also, the competitive environment affects the development of demand for services. The market is saturated with many offers that stimulate rivalry among sellers and lower prices for buyers. Thus, the services market is regulated by various factors that shape supply and demand, which leads to certain behavior and equilibrium of the market.

The Law of Supply. Formation of the Offer in the Market of Services

The suggestion describes the ability and ambition of the trader to provide services for purchase on the market at set prices. This definition depicts the proposal and reflects its essence in terms of quality. In quantitative expressions, the offer is described by its size and volume (Buechner, 2018). Volume, the cost of the offer, is the number of services that the company wants and is able to submit for trade on the market for a specific time at a proper price.

The law of supply indicates that rising valuations for services guide to an expansion in the whole of services. Accordingly, there is a reduction in the production of services in the event of declining demand. The level of profits for welfares and services also affects the income of producers and sellers. Therefore, rising prices accumulate their interest in inventing new services. Moreover, the increase in the offer of goods and services should be equated with the stability of the business. Therefore, due to the decrease in customer demand, the company should strive to reduce production costs by increasing productivity and saving resources. That is, the growth of the supply of services with increasing its price is due to the fact that at constant costs per unit of service with advancing price, profit grows, and the company becomes effective to offer more services (Baye & Prince, 2021). The accurate picture in the market is more complicated than this simple plan, but the tendency expressed in it takes place.

For example, in the case of interest in air travel, companies will offer more flights. In order for the buyer to choose a specific offer, additional services, such as complimentary breakfast or paid extra luggage space, will be introduced. Thus, the cost of supplementary services will return off due to high ticket sales and will lead to an extraordinary supply in the market. Accordingly, the increased number of offers will provide the buyer to choose the essential quality and necessary service.

When forming the proposal on the market of services and ensuring the competitiveness of the enterprise offering services, it is necessary to ensure the complexity of the offered services and their complementarity. It is also required to inform the potential buyer in an accessible form about the benefits of purchasing the service. In addition, it is important to create conditions for the availability of the service to bring it closer to the potential consumer, providing, if necessary, convenient and comfortable delivery of the client to the place of service (Buechner, 2018). In addition, to increase competitiveness, the corporation can individualize services according to customer needs, such measures will help establish the company’s position in the market.

In fact, the market supply depends on many variables, but it is possible to draw a diagram and obtain a supply trajectory. That is, sellers can calculate all factors except the price of the service. The parts that should be used are production costs, technology, and the presence of competitors in the industry, taxes. The curve shows the ability of manufacturers to sell services, taking into account production costs. The expensive organization can result in less supply on the market. Also, advanced technologies and loyal government regulation affect the increase in supply. However, the lack of flow of labor or means of transportation has a negative effect on the number of services. A special point in the supply curve is controlled by the company’s position in the market and the number of opponents (Baye & Prince, 2021). Thus, a large figure of competitors stimulates the development of unique services at a lower charge.

Besides, the services market is characterized by flexibility, making it potential to change the offers. That is, if the cleaning company cleaned the private houses, it can produce a proposal that would be related to the cleaning of industrial organizations. Finally, the tax factor is most predictable in the supply line. Obviously, the company examines government regulations to determine taxes on certain services (Baye & Prince, 2021). For example, raising income taxes also increases the value of service offers. Thus, the law and the supply trajectory enable companies to assess the opportunity of entering the market and explore existing proposals. Hence, only a complete and professional analysis of the services market can protect companies from bankruptcy and permit them to make significant earnings in the case of a deficiency of services.

The Law of Demand. Factors Determining the Formation of Demand for Services

Demand is a request from a present or possible customer to obtain a service with the funds available. Demand reflects the buyer’s need for particular goods or services, the desire to purchase services in specific quantities. It also shows the capability to pay for a buyer at costs that are within the potential range. In addition, demand is described by properties and quantitative parameters, highlighting the volume or magnitude of the request. Accordingly, if a company will quantify the necessity to receive a service, profits will progress. The volume of demand means the amount of this product that consumers want and have money to buy over a while at specific rates (Baye & Prince, 2021). Although, in addition to price, the magnitude of demand is influenced by several other factors, which are sometimes termed non-price. These are consumer tastes, fashion, income, the cost of other services, and the ability to replace this result with others.

In addition, there are the following factors that shape the demand for essential services. The willingness of the enterprise, the person to consume services taking into account economic, cultural, moral, and ethical norms and advantages. Recognition of the potential consumer of the service about their consumer properties of the received benefit. Also, the effectiveness of advertising and other forms of notification about services, safety, quality assurance. Demand for additional services arises due to the connection of added and central services in terms of the complexity of their provision (Kaleka & Morgan, 2017). That is, it is impractical to develop a scope of additional services on the principle of interchangeability; they need to be complementary.

In matter, corporations often propose extra services in order to improve the request for the original product. In this way, they will interest more customers and gain an advantage over opponents. Demand for basic and extra services varies. Thus, related services are not separate objects of buying and sale, and the appearance of requests for them is associated with the demand for basic services. The entrepreneurial activity of the business is usually focused on the sale of central services, and related services increase the attractiveness of the acquisition of basic. Expanding the range of additional services at low costs for their implementation significantly increases the competitive advantages of the enterprise, stimulates sales of primary products or access to services (Kaleka & Morgan, 2017). Moreover, positive awareness of the customer of the main service about the range of services and pricing policy for extra services will increase demand.

In fact, according to the law of demand, it reduces as the rate of goods rises. That is, lower prices produce an expansion in demand. If the customer has a definite amount of money to purchase the service, then in the case of a high cost, he will be able to order fewer services. Nevertheless, the market situation is more difficult because the customer can raise extra funds to buy another service instead of one. In general, the law of demand reflects the principal intention of reducing procurement with rising prices for services in conditions where the buyer’s financial resources are limited. For example, cheap costs for train tickets encourage buyers to prefer ground transport, which increases demand (Kaleka & Morgan, 2017). However, customers will probably use the savings and choose air flying. The law is effective for estimating the demand for services but cannot provide for the client’s individual decision.

Important is the demand trajectory, which shows the probable quantity of services that can be traded at a specific time and at a constant price. That is, if the demand is more elastic, then a higher price can be set for the commodity. The demand curve is influenced by purchaser income and tastes, advertising, and prices for competitive services. First, an improvement in the level of profits of consumers raises demand, as they can afford to obtain the service at any rate. Therefore, a global crisis or large-scale layoffs will reduce their stability and demand for services. Also, a critical factor is competitors’ prices for similar services. If opponents offer more reasonable values for services of the same quality, the consumers will prefer the most helpful suggestion (Baye & Prince, 2021). However, not all services can be replaced; for example, an expansion in the value of computer maintenance will decrease the demand for the service. The next factor is advertising; it can improve the sales of even unpopular services, as it will introduce a fashion for using a particular setting.

Obviously, the size and age of the population affect the market situation. Suppose the population shrinks, then the demand for all services discounts. The age of the community is also significant because young people will develop the demand for beauty services, while the older generation will need medical assistance. Consumer expectations are standard for calculating demand (Baye & Prince, 2021). If clients are confident that the tourist service will be more expensive next year, then the current year will increase the travel market. This solution will permit to save on costs and manage the demand for several years.

Thus, supply and demand are integral categories of market organization of management, expressing the objective economic relations of production of services. Demand defines the aggregate social or market request for services, which is determined by the solvency and expressed in monetary terms. Therefore, it is always explicitly defined and can change dynamically under the influence of several factors. It is the stability of supply and demand in the market that guides economic prosperity.

The Market Equilibrium and Behavior

Market conditions are characterized by specific supply and demand ratios in time and space, which are formed as a set of commodity supplies under the power of an appropriate combination of factors. The determining symbols of market conditions are the prices at which traders sell and buyers obtain services; their specific values fluctuate according to the prevailing supply and demand trends (Jintao et al., 2020). In the case of the extensive effect of market laws, business conditions can change dynamically and be distinguished by different elements.

Deficit market conditions may be short-lived or permanent. The deficit is a consequence of temporary disparities in the creation of a particular service. It is more often associated with structural changes in the economy, destructions of cyclical production, price factors. In market conditions, the first sign of a deficit is a sharp decline in the supply of services. This situation on the boom leads to an increase in demand. Therefore, it is advantageous for manufacturers to provide supply. They can achieve this goal by developing production or, if they are only traders, increasing orders to operators. At the same time, they will double the price because they know that users are obviously willing to pay more (Baye & Prince, 2021). As a result of these actions, the supply trajectory will move; the price and supply will increase.

For example, the reduction in the transportation business allows taxi drivers to raise fares and combine trips to one destination with several passengers. The demand for such trips will increase despite the extraordinary expense and inconvenience for customers (Jintao et al., 2020). Also, a deficit in a particular section of business can lead to an extensive number of new opponents in the market. The reverse situation of market behavior is the excess of services in the industry. In this case, the supply at a specific price in the market exceeds the available demand. The crisis of overproduction of services can become a model of the extreme manifestation of the periodic surplus of market conditions, when a taxi company introduces service discounts to avoid car downtime (Jintao et al., 2020). There is competition from producers for the advantage of transferring their products to the client, which leads to saturation of the market with services.

Finally, another significant element of market circumstances is characterized by the point of coincidence of supply and demand. According to the state of market equilibrium, sufficient compliance of supply and demand is subject to establishing a certain level of value that satisfies sellers and buyers of the service. Although, business conditions are usually short-lived, given the constant balancing of supply and demand around the equilibrium point. Market balance as a desirable state of activities cannot be fixed for a sustained period. This would contradict the action of the previously mentioned driving factors.


In some manner, the law of supply and demand, one of the most fundamental economic rules, connects practically all economic teachings. The law of supply and demand is a system that describes the cooperation among traders of a seller and buyers. The system determines the connection between the value of service and people’s interest to obtain it. As a rule, as the price develops, agents are ready to suggest more services. Accordingly, when demand decreases, then reduce the production of services to achieve market equilibrium.

The approach is significant because it helps investors, managers, and bankers to assume and anticipate market conditions. For illustration, a firm that begins new services may purposely attempt to increase the cost of its product by developing buyer interest through promoting. At the same time, companies may decide to change their price even more by deliberately limiting the number of pieces they sell to reduce supply. In this situation, the offer will be reduced, while demand will be increase, leading to higher prices. Therefore, supply and demand describe attempts to reach a state of equilibrium in the market to satisfy buyers and sellers. This basic idea represents a vital role in the modern economy.


Baye, M. R., & Prince, J. (2021). Managerial economics & business strategy. Dubuque McGraw-Hill Education.

Buechner, N. N. (2018). A comment on the law of supply and demand. Editura Rosetti International, 8, 67-80.

Jintao, K., Hai, Y., Xinwei, Li., Hai, W., & Jieping, Y. (2020). Pricing and equilibrium in on-demand ride-pooling markets. Transportation Research Part B: Methodological,139, 411-431.

Kaleka, A., & Morgan, N.A. (2017). Which competitive advantage(s)? Competitive advantage–market performance relationships in international markets. Journal of International Marketing, 25(4), 25-49.

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