The Law of Supply and Demand
The law of supply and demand is a fundamental principle in economics that explains the relationship between the availability of a product or service and the desire for it. The basic concept is that when supply exceeds demand, prices fall, and when demand exceeds supply, prices rise.
Supply and Demand Curve
The law can be visually represented on a graph with the supply curve sloping upward from left to right, indicating that as the price of a product increases, the quantity supplied also increases. The demand curve, on the other hand, slopes downward from left to right, showing that as the price of a product decreases, the quantity demanded increases.
Examples
- In times of drought, the supply of agricultural products decreases, causing the prices of fruits and vegetables to rise.
- During a recession, consumer demand for luxury items decreases, leading to a surplus of these products and a drop in prices.
Case Studies
One famous example of the law of supply and demand in action is the diamond market. De Beers, a diamond mining company, controls the supply of diamonds to keep prices high despite the abundance of diamonds in the world.
Statistics
According to the Law of Demand, there is an inverse relationship between the price of a product and the quantity demanded. As the price of a product decreases, the quantity demanded increases, and vice versa.
