The Law of Supply and Demand is an economic principle that explains how the price and quantity of goods and services in a market are determined. According to this principle, the price of a good or service is determined by the balance between its supply and demand in the market. When the demand for a good or service exceeds its supply, the price tends to rise, and when the supply exceeds the demand, the price tends to fall.
The Law of Supply: all other things being equal, the higher the price of a good or service, the greater the quantity that suppliers will produce and offer for sale. This is because as the price of a good or service increases, suppliers are more likely to allocate more resources to produce and sell it, which increases the quantity supplied. On the other hand, if the price of a good or service falls, suppliers may reduce the quantity they produce and offer for sale, as the profit margins may be lower.
The Law of Demand: all other things being equal, the lower the price of a good or service, the greater the quantity that buyers will demand. This is because as the price of a good or service falls, buyers are more likely to purchase more of it, as they can afford to buy more with their limited income. Conversely, if the price of a good or service rises, buyers may purchase less of it, as it becomes more expensive and their income becomes limited.
The intersection of the supply and demand curves in a market determines the equilibrium price and quantity for a good or service. At this price, the quantity supplied equals the quantity demanded, which means that the market is in balance. Any changes in the supply or demand curves will cause the equilibrium price and quantity to shift, leading to changes in the market price and quantity of goods and services.