The Law of Supply and Demand


In the market, supply and demand interact freely. Supply is represented by producers or sellers while demand is represented by buyers. Producers are willing and able to offer more goods at higher prices. This is the law of supply. On the other hand, buyers are willing and able to purchase at lower prices. This is the law of demand. There is therefore a contradiction between the two parties. One likes high price while the other likes low price. At a high price, sellers offer more goods because they are encouraged. But buyers are able to purchase less goods. The result is a surplus of goods. This means quantity, supplied is greater than quantity demanded. To sell the surplus goods, sellers compete with one another in decreasing their price. Buyers can take more goods at a lower price. But producers are discouraged to produce and offer goods at a very low price. The result is shortage of goods. This means quantity demanded is greater than quantity supplied. Such situation compels many buyers to pay a higher price to get the available goods. In the process of interaction between buyers and sellers, an equilibrium price (meaning in balance or at rest) is established. This is a situation where quantity supplied and quantity demanded are equal. There is no surplus nor shortage.

More by this Author

  • What is a Good Tax System?

      Economists and social philosophers have developed the various ideas about a good tax system. Many of these ideas came from the book Wealth of Nations written by Adam Smith. These are the canons of taxation:...

  • Limitations of Economic Methods

    It is true that economics uses scientific methods in gathering data, formulating theories or principles, and in making conclusions. However, there are limitations such as the biases and values of those who get the...

  • Different Types of Sandwiches

    Sandwiches A sandwich is made up of one or more slices of bread with nutritious filling between them. Any kind of bread,cream or loaf bread, rolls and buns will make a good sandwich. The filling may be slices of cold...


No comments yet.

    Sign in or sign up and post using a HubPages Network account.

    0 of 8192 characters used
    Post Comment

    No HTML is allowed in comments, but URLs will be hyperlinked. Comments are not for promoting your articles or other sites.

    Click to Rate This Article