The law of supply and demand is an economic theory that describes the relationship between the availability (supply) and desirability (demand) of a particular product or service, and how they influence its price and quantity in a market. According to this principle, in a free and competitive market, the price of a good or service will adjust until it reaches a point where the quantity supplied equals the quantity demanded.
The law states that if the supply of a product or service increases while demand remains constant, the price will decrease, ceteris paribus. Conversely, if the supply decreases while demand stays the same, the price will increase. If both supply and demand increase, the equilibrium price and quantity will rise. Conversely, if both supply and demand decrease, the equilibrium price and quantity will fall.
This fundamental economic principle is based on the assumption that consumers will demand more of a product or service at a lower price, while producers will be willing to supply more at a higher price. Therefore, the interplay between supply and demand ultimately determines the equilibrium price and quantity in a market.
The law of supply and demand is a powerful tool in economics, providing insights into price fluctuations, market dynamics, and resource allocation. Understanding this principle helps individuals and businesses make informed decisions based on market conditions, predicting how changes in supply and demand will impact prices and quantities of goods and services.
