It's all about supply and demand!
The law of supply and demand is actually an economic theory popularized by Adam Smith in 1776. The principles have been shown to be very effective in predicting market behavior. However, there are several other factors that affect markets at the micro and macroeconomic level. The law in question strongly guides the behavior of the market, but does not completely determine it.
The most fundamental concepts of economics consist of this law. Whether you are an academic, a farmer, a pharmaceutical manufacturer, or just a consumer, its basic premise is integrated into your daily actions, and only after understanding the basics of these models can the more complex aspects of economics be mastered.
Supply diagrams are drawn from the producer's point of view and demand is depicted from the consumer's point of view.
As the price of a product increases, the demand for the product decreases; While with the increase in price, producers are willing to produce more products to achieve more profit. Similarly, falling prices will reduce production, as producers may not be able to cover their input costs after selling the final product.
When prices are higher, producers are encouraged to increase their activity in order to increase productivity. At this time, consumers are looking for the lowest cost. Naturally, the ideal price a consumer would pay for a good would be $0. However, such a phenomenon is impossible; Because manufacturers cannot stay in business. Manufacturers seek to sell their products as much as possible. However, when prices become unreasonable, consumers change their preferences and move away from the product. A proper balance must be struck whereby both parties can engage in continuous business transactions for the benefit of consumers and producers. (Theoretically, the optimal price that results in producers and consumers achieving the maximum level of combined utility occurs at the price where the lines intersect.)
The principles of this law have been illustrated repeatedly over the centuries in various market conditions. However, today's economy is more global than in the past, and macroeconomic forces are difficult to predict. These principles are effective indicators, but not specific predictors.
This theory applies not only to physical products, but also to wages and labor mobility. More advanced theories of microeconomics and macroeconomics often adjust the assumptions and appearance of supply and demand curves to correctly represent concepts such as economic surplus, monetary policy, externalities, aggregate supply, fiscal stimulus, elasticity, and deficits.
demand curve
In basic economic analysis, often all factors are held constant except the price of the commodity. The analysis then involves examining the relationship between the various price levels and the maximum quantity potentially purchased by consumers at each of those prices. The price-quantity combination may be plotted on a curve, known as the demand curve. In this graph, price is displayed on the vertical axis, and the quantity shown on the horizontal axis, the demand curve, is almost always downward-sloping, indicating consumers' willingness to buy more of the good at lower price levels. Any change in non-price factors causes a shift in the demand curve, while changes in the price of a good can be traced along a fixed demand curve.
Supply curve
The quantity of a commodity that is offered in the market depends not only on the attainable price of that commodity, but also on many other potential factors.
In basic economic analysis, supply analysis involves examining the relationship between various prices and the potential quantity supplied by producers at each price, as well as all other factors that can affect price stability. These combinations of price and quantity may be plotted on a curve known as the supply curve. With price shown on the vertical axis and quantity shown on the horizontal axis, the supply curve, which is usually upward sloping, represents the willingness of producers to sell more of the good they produce in a market with higher prices. In a market with higher prices any change in non-price factors causes a shift in the supply curve, while changes in the price of the good can be traced along a fixed supply curve.
Based on what has been said, supply is about how much producers of a product or service are willing to produce and can supply to the market with the limited amount of available resources. While demand is how much buyers want to have that product or service from the market.
Since the demands of buyers are endless, it is not possible to meet all demands due to lack of resources. This is where the relationship between supply and demand plays an important role and enables the efficient allocation of resources and the determination of the market price for the product or service, which is known as the equilibrium price. This price represents the price at which suppliers are willing to supply and buyers are willing to buy from the market.
A shopkeeper offered a box of chocolates for $20 and was able to sell an average of 50 boxes per week. He decided to offer a 50% discount and drop the price to $10. This led to his sales increasing to 100 boxes per week.
According to the law of supply, as the price of a product increases, suppliers will be more willing to supply that product because they can sell that product or service.
Source : Supply And Demand
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