Supply and demand are market forces that determine the price of a product. An example is when customers are willing to buy 20 pounds of strawberries for $2 but can buy 30 pounds if the price falls to $1, or when a company offers 5,000 units of cell phones for sale at a price, and only half of them are bought.Continue Reading
Demand indicates the willingness of potential customers to buy a product at a specific price, while supply is the amount of a product that’s available for sale at a given price. The price is a major determinant of demand, although consumer tastes and income, and prices of alternative or complementary products also have an impact. Supply is also determined by price, as traders are willing to offer more for sale when prices are high. Other supply determinants include: cost of production, competition and producer expectations.
An equilibrium price is achieved when the demand of a product equals its supply. If supply exceeds demand, sellers reduce prices to encourage buying, which leads to market equilibrium. If there is more demand for a product than the amount available for sale, sellers hike prices to achieve equilibrium.
The law of demand and supply may also apply in provision of services, such as college education.Learn more about Economics
As of 2014, South Korea has a market economy based on supply and demand. In a market economy, the decisions to invest, build and expand are based on what is needed for the country to operate at optimal levels.Full Answer >
A market economy is driven by supply and demand. Producers sell goods for the highest prices possible, and members of the labor force work for the highest wages they can earn. Determinations as to how goods and services are allocated are made primarily by markets.Full Answer >
Inflation generally increases when the gross domestic product (GDP) growth rate is above 2.5 percent due to several factors, such as demand for goods overstretching supply and higher wages in an ultra-competitive job market, according to Investopedia. When inflation starts to rise, consumers tend to spend more money before prices go higher.Full Answer >
The law of supply and demand in economics indicates that a "surplus" exists when supply of a given product exceeds demand. If the supply of gum exceeds demand, for instance, resellers end up with excess inventory that they discount or throw out. A surplus also contributes to lowering prices because companies are competing for business, rather than consumers desperately trying to find an affordable option.Full Answer >