Law of Supply:
An economic law stating that as the price of a good or service increases, the quantity supplied increases, and vice versa IN OTHER WORDS... The law that states that as price goes up, the quantity supplied goes up (and vice versa); direct relationship |
Law of Demand:
An economic law stating that as the price of a good or service increases, the quantity demanded decreases, and vice versa IN OTHER WORDS... The law that states that as price goes up, the quantity demanded goes down (and vice versa); inverse relationship |
Real-World Example: Tacos
Let's put the two laws (Law of Supply and Law of Demand) into a real-world scenario...
Imagine you were an avid consumer of tacos. What would happen if the prices for tacos suddenly increased by $3? You would probably not buy them as often because they would be out of your price range. For the most part, if prices on tacos increased, the demand for tacos would decrease.
Why is this important?
This is relevant in the way that it shows the inverse relationship between price and quantity in demand. (Law of Demand)
Now, what if you were on the producer end? If you were the manager selling tacos, what would you do if you increased the quantity? You would hope to sell them at a higher price because you want to gain back some of the money used to produce the excess (and more as profit). In the same way, if the prices on tacos decreased, the suppliers would sell less to maintain their supply.
Why is this important?
This is relevant in the way that it shows the direct relationship between price and quantity in supply. (Law of Supply)
Imagine you were an avid consumer of tacos. What would happen if the prices for tacos suddenly increased by $3? You would probably not buy them as often because they would be out of your price range. For the most part, if prices on tacos increased, the demand for tacos would decrease.
Why is this important?
This is relevant in the way that it shows the inverse relationship between price and quantity in demand. (Law of Demand)
Now, what if you were on the producer end? If you were the manager selling tacos, what would you do if you increased the quantity? You would hope to sell them at a higher price because you want to gain back some of the money used to produce the excess (and more as profit). In the same way, if the prices on tacos decreased, the suppliers would sell less to maintain their supply.
Why is this important?
This is relevant in the way that it shows the direct relationship between price and quantity in supply. (Law of Supply)
Summary
Let's review the Law of Supply and Law of Demand...
Law of supply explains the relationship between price and the quantity supplied. If an object’s price on the market increases, the producers would be willing to supply more of the product. If the object’s price on the market decreases, they are less willing to supply a lot and the quantity decreases.
Law of demand explains the relationship between between price and quantity demanded. If an object’s price on the market increases, less people will want to buy them because it is too expensive. If the object’s price on the market decreases, more people will want to buy them because they are cheaper.
Both of these laws help determine the roles that producers and consumers take in the world of economics. There is still much to be learned, but the two laws help to concentrate the main ideas in supply and demand that help make sense of the connection between price change and quantity change.
Law of supply explains the relationship between price and the quantity supplied. If an object’s price on the market increases, the producers would be willing to supply more of the product. If the object’s price on the market decreases, they are less willing to supply a lot and the quantity decreases.
Law of demand explains the relationship between between price and quantity demanded. If an object’s price on the market increases, less people will want to buy them because it is too expensive. If the object’s price on the market decreases, more people will want to buy them because they are cheaper.
Both of these laws help determine the roles that producers and consumers take in the world of economics. There is still much to be learned, but the two laws help to concentrate the main ideas in supply and demand that help make sense of the connection between price change and quantity change.