The Law of Supply and Demand     1

• For a market economy to function, producers must supply the goods that consumers want, which is called the law of supply and demand.
• Supply refers to the amount of goods available in a market and demand refers to how much of the goods people want.

The Law of Supply and Demand     1

• The law of supply and demand explains how prices are set for the sale of goods. The whole process starts with people wanting certain goods that they can't provide themselves with.
• Usually the promise to make large amounts of money enable the producers to make more goods to meet the demand of the people.

The Law of Supply and Demand     1

• An example of supply and demand is when a phone company makes around 5,000 new phones and sets the price for them at $300 and as a result of the people wanting the phones and finding the price alright they buy and nearly half of the phones have been bought.
• There is however a problem and when people don't feel like paying that much they don't buy, and as a result the company lowers the price to try and boost the profits and meet demand.

The Law of Supply and Demand     1

• When the supply balances out with demand, the market is said to have reached equilibrium, which is when resources are used to maximum effectiveness.
• The study of economics is largely a study that asks how most market economies can reach equilibrium.

The Law of Supply and Demand     1

• The Law of Supply and Demand explains why people act a certain way in a market economy, and can be used to predict behavior and economic outcomes.
• The Law of Supply and Demand is not just limited to the sale of products and it can be used to explain how almost any economic phenomenon, such as a rise or drop in employment.