Laws of Supply and Demand

Definition

The laws of supply and demand are economic principles that explain how the prices of goods and services are determined in a market. According to the law of demand, as the price of a product increases, the quantity demanded decreases, while according to the law of supply, as the price increases, the quantity supplied also increases.

Related terms

Equilibrium Price: The equilibrium price is the point where the quantity demanded equals the quantity supplied in a market. It is determined by the intersection of supply and demand curves.

Elasticity: Elasticity refers to how responsive consumers or producers are to changes in price or income. If demand or supply is elastic, it means that even small changes in price can significantly affect quantity demanded or supplied.

Market Forces: Market forces refer to factors such as competition, consumer preferences, and technological advancements that influence supply and demand in a market economy. These forces shape prices and determine resource allocation.