Introduction to demand and supply in economics

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What is Demand and Supply in Economics?

Demand and Supply are the economic principles or forces of the free market that controls what producers want to produce and what buyers want to buy and pay for.

What is Demand?

If a person has a desire to buy something and can pay for that, then it is the demand for that particular product. Demand is the rate at which customers want to buy a product.

The quantity of a good that consumers are willing and able to acquire at various prices during a certain period of time is known as demand in economics.

Demand is basically based on needs and wants—if you have no need or want for a product or service, you won’t buy it. Demand is also based on the capacity to pay. If you cannot pay for it, you have no effective demand. By this definition, a homeless person probably has no effective demand for shelter.

Demand refers to the desire of people (consumers) to buy a product or service and their willingness to pay at a given price and time.

What is the Law of Demand?

The law of demand states that the price of an item is inversely proportional to the amount demanded. When the price of a good rises, demand decreases because consumers are hesitant to spend more and more money on their purchases. When the price of a good falls, demand for the good rises because the consumer prefers to buy it when the price is lower. The laws of supply and demand are used to describe how market economies allocate resources and set prices for products and services in everyday interactions.

According to the law of demand, the greater the price of a good, the fewer people will demand it if all other things remain constant. The amount of a good that purchasers purchase at a higher price is less because the opportunity cost of buying that good rises as the price of that good rises.

Price per unitQuantity demanded in units
1050
860
670
480
290
law of demand graph
Figure: Law of demand

What is Supply?

Supply refers to a product or service that producers are willing to make available at a given price and time. Simply, saying willingness and ability to produce products and services by the seller is known as supply.

When a product’s price is low, so is its supply. When a product’s price is high, so is its supply. This makes sense because businesses are in the market to make money. They are more likely than not to manufacture things with a higher price and a larger chance of making a profit.

What is Law of supply?

The law of supply, like the law of demand, shows the amounts sold at a given price. The supply relationship, unlike the law of demand, has an upward slope. As a result, the higher the price, the greater the quantity supplied.

law of supply graph
Fig. Supply curve

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