đź“ŚWhat Is the Law of Supply and Demandâť“âť—
đź“ŠBefore we get into specific answers, it is important to understand how markets work and why prices move. Price movement in any free market is a function of an ongoing supply and demand relationship within that market. Opportunity exists when this simple and straight forward relationship is out of balance. Put quite simply, a market is made up of three components: buyers, sellers, and a
widget being bought or sold. These widgets may be shares of a stock, S&P futures , foreign currencies, bonds, and many more tangible and intangible “widgets”
âś…The law of supply and demand is a theory stand in all markets ,that explains the interaction between the sellers of a resource and the buyers for that resource . The theory defines the relationship between the price of a given good or asset and the willingness of people to either buy or sell it. Generally, as price increases, people are willing to supply more and demand less and vice versa when the price falls.
The theory is based on two separate “laws,” the law of demand and the law of supply. The two laws interact to determine the actual market price and volume of goods or asset on the market.
KEY TAKEAWAYS
⚪The law of demand says that at higher prices, buyers will demand less of an economic good or asset.
âš«The law of supply says that at higher prices, sellers will supply more of an economic good or asset .
đź”´These two laws interact to determine the actual market prices and volume of stuff that are traded on a market.
🔵Several independent factors can affect the shape of market supply and demand , influencing both the prices and quantities that we observe in markets.
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The equilibrium price and equilibrium quantity occur where the supply and demand curves cross.
The equilibrium occurs where the quantity demanded is equal to the quantity supplied. If the price is below the equilibrium level, then the quantity demanded will exceed the quantity supplied.
