The market forces of supply and demand are among the most fundamental concepts of economics since they are backbone of the market economy. These forces help in determining the cost of goods and services and therefore they are important in assisting businesses to formulate the long term strategies. Demand is simply the quantity that people are willing to buy at a specific price while the supply is the quantity that the producers are willing to supply at a certain price. However, some artificial elements may interfere with the laws of supply and demand thereby causing disruptions in the economic balance. The following are supply & demand basics to help you understand it better.
The law of demand
This law states that the higher the price of a good, the lower the quantity demanded. The quantity of goods which buyers buy at a higher price is less since as the price goes up, the opportunity cost of buying that good also goes up. In return, people will avoid purchasing that product in preference of another one. The demand curve can be plotted as a downward straight line to show the correlation between the price and the quantity demanded at that price. This curve illustrates a negative relationship between the quantity demanded and the price of a certain product. Generally, the lower the price, then the more the goods shall be demanded. Continue reading