The Popular Explanation of the Supply Side
Take mineral water as an example to illustrate what the supply side is. Companies that produce mineral water find that mineral water cannot be sold, indicating that there may be insufficient market demand or overcapacity. In order to stimulate demand, we call on everyone to drink more mineral water, buy more mineral water, or sell mineral water abroad, and finally find that it cannot be sold abroad. This shows that the problem of mineral water is not on the demand side, but on the supply side. The supply side needs reform.
Why can’t the water be sold? If it is because the mineral water is not good, it is necessary to improve the production process of the mineral water, improve the quality of the mineral water and the trace elements in the water, which is actually to increase the effective supply, improve the efficiency and benefit of resource allocation, and achieve more quality and benefit development.
Economics has two propositions, one is that demand determines supply, and the other is that supply determines demand.
Demand determines supply, which is the core theoretical starting point of mainstream microeconomics called vulgar economics. It is easy for us to understand. However, few people have studied its connotation. Demand determines supply, that is to say, for a product that already exists in the society, what is the demand of consumers and what price they can afford will be satisfied by the production enterprise.
From the perspective of social development and innovation, what is supply determines what is demand, that is, supply determines demand.
The difference between quality and brand is that in modern society, supply more generally determines demand. If the import factor is not considered, when there are no high-end brands and high-quality products in the society, ordinary people can only endure the supply of low-end products.
Differences between Demand Side and Supply Side
For economic growth, the roles of demand and supply are not equal, but asymmetric; we can look at it from five aspects;
As far as economic growth is concerned, supply is active and demand is passive. Technological innovations, product inventions, improvements in production efficiency and business organization all take place on the supply side, and demand has always been a potential role that needs to be met.
Secondly, looking back on the historical process of economic growth, the supply power is long-term and decisive, while the demand is the periodic optimization factor. The improvement of the income distribution gap and the improvement of the social welfare security system are important, but they do not expand the total amount of social wealth, but only optimize social wealth more reasonably and equitably;
Third, in a crisis, the policy measures on the demand side are very necessary and effective, just like people need to take medicine to treat their diseases; the role of the supply side is more played through the market mechanism under the normal state of economic development , just like the normal growth and development of people need to eat and exercise;
Fourth, supply-side measures are often positive and constructive; demand-side measures are more of a restraint or stimulus, and are not suitable for frequent intervention;
Finally, suppliers include not only business entities that provide goods and services, but also government roles that need to provide institutions and public services, and even social organizations and other supplementary entities to fully meet social needs in a multi-level supply system.
Therefore, as the first supplier to integrate resources, innovate, create value and wealth, enterprises should play a decisive role in the market. The government supply system should focus on how to release the vitality of enterprise supply, and the public services provided are supplements of market externalities.