Supply and demand is the interaction that results in prices and quantities of products produced. Supply comes from the willingness of consumers to purchase a product at a certain price. Demand stems from consumer wants, and the willingness of the supplier to respond to this demand. Both determine the elasticity of a product. The responsiveness of demand and supply cause a product to become elastic, if the quantity in the demand curve changes increasingly. It becomes inelastic, if the quantity in the demand curve changes is minor. Economics provides an inside look into where product prices and quantities come from according to the consumer needs and wants. By understanding economics and the laws of supply and demand and price elasticity, the consumer can make decisions on what works best for him or her financially and personally.
It is important to understand the basics of the law of demand and supply, in order to understand the basics of economics. Simply put, the law of demand states that “holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease” (Economics, 2010, p. 67); and, the law of supply states that “holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in price cause decreases in the quantity supplied” (Economics, 2010, p. 75). Another important definition to understand is market equilibrium. That is, “a situation in which quantity demanded equals quantity supplied” (Economics, 2010, p.78). When there is more of a product in supply than there is a demand for, a surplus of the product is in the market; conversely, when the product demand is greater than the product that is supplied, there is a shortage in the market. During a shortage, firms will raise the price, which also results in the increased... [continues]
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