What Is the Law of Supply and Demand?

By Staff WriterLast Updated Mar 27, 2020 11:54:05 AM ET

The law of supply and demand is an unwritten rule which states that if there is little demand for a product, the supply will be less, and the price will be high, and if there is a high demand for a product, the price will be lower. If the demand for a product is high, the supply becomes greater, driving down the price.

The law of demand states that the higher the price of a product, the less consumers will demand that product. The law of supply says that producers of a particular good raise the price of that product to increase revenue. Supply and demand work together to help determine how much of a product is produced and what the maximum price of that product can be, to increase revenue for the producer without decreasing the demand.