Markets exist due to supply, demand, quantity and price, according to the Library of Economics and Liberty. The relationship between these variables creates a market for any given good or service.Continue Reading
To understand how markets are created, a person must understand the definition of the variables that constitute a market. Supply is known as the relationship between a quantity of a good or service produced and the given price of that good or service. By contrast, demand is the relationship between a quantity of a good or service consumed and the given price of that good or service. Supply and demand are known to intersect at the equilibrium point, which represents the creation of a specific market for that good or service.
Various changes can occur that impact a specific market. Some of the common changes include shifts in the supply or demand. The law of supply states that as the quantity of a good produced increases, the price increases accordingly. The logic behind this concept is that entities are likely to supply more of the specific product to become more profitable. The law of demand states that as price of a good or service increases, the quantity consumed decreases accordingly. The notion surrounding this thinking is that consumers are less inclined to purchase a good or service with an increase in price.Learn more about Investing