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    Law of Supply and Demand

    Uploaded by

    Lhoy Guisihan Asoy Idulsa
    The document discusses the law of supply and demand. It states that the law of supply and demand explains how the availability of a product (supply) interacts with the desire for that product (demand) to determine the product's price (equilibrium price). Specifically, it notes that low supply and high demand increase price, while high supply and low demand decrease price. The document then discusses factors that can affect both supply and demand, such as production costs, quality, substitutes, and more. Finally, it explains how the law of supply and demand also applies beyond just prices to describe other economic phenomena like wages and stock prices.

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    © All Rights Reserved
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    Law of Supply and Demand

    Uploaded by

    Lhoy Guisihan Asoy Idulsa
    647 views2 pages
    The document discusses the law of supply and demand. It states that the law of supply and demand explains how the availability of a product (supply) interacts with the desire for that product (demand) to determine the product's price (equilibrium price). Specifically, it notes that low supply and high demand increase price, while high supply and low demand decrease price. The document then discusses factors that can affect both supply and demand, such as production costs, quality, substitutes, and more. Finally, it explains how the law of supply and demand also applies beyond just prices to describe other economic phenomena like wages and stock prices.

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    Law of Supply and Demand.docx

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    The document discusses the law of supply and demand. It states that the law of supply and demand explains how the availability of a product (supply) interacts with the desire for that product (demand) to determine the product's price (equilibrium price). Specifically, it notes that low supply and high demand increase price, while high supply and low demand decrease price. The document then discusses factors that can affect both supply and demand, such as production costs, quality, substitutes, and more. Finally, it explains how the law of supply and demand also applies beyond just prices to describe other economic phenomena like wages and stock prices.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    647 views2 pages

    Law of Supply and Demand

    Uploaded by

    Lhoy Guisihan Asoy Idulsa
    The document discusses the law of supply and demand. It states that the law of supply and demand explains how the availability of a product (supply) interacts with the desire for that product (demand) to determine the product's price (equilibrium price). Specifically, it notes that low supply and high demand increase price, while high supply and low demand decrease price. The document then discusses factors that can affect both supply and demand, such as production costs, quality, substitutes, and more. Finally, it explains how the law of supply and demand also applies beyond just prices to describe other economic phenomena like wages and stock prices.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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    Law of Supply and Demand

    What is the Law of Supply and Demand


    The law of supply and demand is a theory that explains the interaction between the supply of
    a resource and the demand for that resource. The theory defines the effect that the availability
    of a particular product and the desire (or demand) for that product has on its price.
    Generally, low supply and high demand increase price. In contrast, the greater the supply and
    the lower the demand, the price tends to fall.

    BREAKING DOWN Law of Supply and Demand


    The law of supply and demand, one of the most basic economic laws, ties into almost all
    economic principles in some way. In practice, supply and demand pull against each other until
    the market finds an equilibrium price. However, multiple factors can affect both supply and
    demand, causing them to increase or decrease in various ways.

    How Do Supply and Demand Create an Equilibrium Price?


    Also called a market-clearing price, the equilibrium price is the price at which the producer
    can sell all the units he wants to produce and the buyer can buy all the units he wants.

    For a simple illustration of how supply and demand determine equilibrium price, imagine a
    business launching a new product. It sets a high price, but only a few consumers buy it. The
    business anticipated selling more units, but due to lack of interest, it has warehouses full of
    the product. Due to the high supply, the business lowers the product price. Demand
    increases, but as the supply dwindles, the business raises the price until it finds the perfect, or
    equilibrium, price to balance its product supply with consumer demand.

    Factors Affecting Supply


    The above example takes into account the supply created only by a single business. In the
    real world, supply is determined by many other factors. Production capacity, production
    costs such as labor and materials, and the number of competitors directly affect how much
    supply businesses can create. Ancillary factors such as material availability, weather and the
    reliability of supply chains also can affect supply.

    Factors Affecting Demand


    Demand is affected by the quality and cost of a product, among other factors. The number of
    available substitutes, amount of advertising and the shifts in the price of complementary
    products also affect demand. For example, if the price of video game consoles drops, the
    demand for games for that console may increase as more people buy the console and want
    games for it.

    Do Supply and Demand Only Affect Prices?


    The law of supply and demand does not apply just to prices. It also can be used to describe
    other economic activity. For example, if unemployment is high, there is a large supply of
    workers. As a result, businesses tend to lower wages. Conversely, when unemployment is
    low, the supply of workers is also low, and as a result, to entice workers, employers tend to
    offer higher salaries. Similarly, in the world of stock investing, the law of supply and demand
    can help to explain a stock's price at any given time.
    The law of supply states that the quantity of a good supplied (i.e., the amount owners or producers
    offer for sale) rises as the market price rises, and falls as the price falls. Conversely, the law of
    demand (see demand) says that the quantity of a good demanded falls as the price rises, and vice
    versa.

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