Law of Supply and Demand

The Law of Supply and Demand is a fundamental economic principle that describes how the price and quantity of goods and services in a market are determined by the interaction of supply and demand. According to this law, when demand for a good or service increases, and supply remains unchanged, a shortage occurs, leading to higher prices. Conversely, if demand decreases and supply remains unchanged, a Surplus occurs, resulting in lower prices.

For example, if a new smartphone is reLeased and consumer interest is high, the demand may exceed the available supply. As a result, retailers may raise prices to balance the market. On the other hand, if there is a sudden increase in the supply of oranges due to a good harvest, but consumer demand does not increase correspondingly, prices may drop to encourage sales.

Case Study: In the housing market, if a city experiences an influx of new residents (increased demand) but there are not enough homes available (limited supply), home prices tend to rise. Conversely, if a recession leads to job losses and people start selling their homes (increased supply) while fewer buyers are looking to purchase (decreased demand), home prices can fall.