The law of supply and demand is actually among the fundamental and basic concepts both of market economy and economics as a whole. The connection between these two lead to various decisions to be analyzed like the cost of an item, how many shall be produced to evenly allocate resources in the most cost efficient and cost-effective approach.
Understanding the Basics First
Let me give you a quick example of supply and demand concept. But before doing so, let’s have a brief discussion on what does supply and demand truly means.
- Supply – this is in reference to the number of available goods in the market
- Demand – this is basically referring to the number of people who are interested in those goods
Now that you know what these two terms mean, you’re now ready to understand the idea behind supply and demand.
Armed with Knowledge, Ready for Battle
Whenever product supply shoots up, its price will go down and the demand for such product will rise due to its loss.
At some point in time, creating too much demand for a particular product will diminish the supply chain.
Because of this, the prices are expected to rise and the product will be too expensive due to scarcity of supply.
It is imperative to attain equilibrium between the two. The amount of goods that are supplied is similar with the resources allocated and amount demanded.
This information is what used in understanding and analyzing the stock market by investors and brokers. If you want to make a living out of this and lack of funds to start, you may reach out to Need Money Now on how you can get cash loan for your needed capital.
How does the Entire System work?
In layman, supply and demand work like this…
A company or business has set its price for their product at 10 dollars apiece. Nobody is taking interest in or buying the product. Thus, the price was lowered to 9 dollars. Demand starts to increase with the lower price and allows the company to rake in profits and make money.
They can further bring down the cost to 5 dollars to boost demand. However, increased demand won’t make up for the money lost when the price is lowered to such amount. Thus, the company leaves the price as is because it’s where the supply and demand reached equilibrium. Raising its price will lessen the demand while lowering it wouldn’t increase demand that’s enough to make up for the profits lost.