The Supply and Demand law

The Supply and Demand law


The Supply is the amount of products or services offered in the market. In the supply, the reaction to a price increase makes the amount offered also increases due to an incentive for producers to produce more of that specific product or service that will make them generate more money. If prices are higher then profits will be too.


In the curve it can be seen thet when prices are very low, it is no longer profitable to supply that product or service in the market, therefore the quantity aproaches 0.

Shifting the supply curve

Shifting the supply curve

If price changes occur the economic law starts looking for an equilibrium (such as incentives to the production of a product) a shift occurs in the supply curve itself. This means that the same price will be more or less interested in bidding (higher or lower amount supplied in the market). The law that moves the supply curve up is a fall in price and vicebersa.

On the other hand the Demand is the amount of goods or services that buyers try to buy on the market.

The Demand curve looks like this:

The Demand curve

Through the law of demand, it is determined that raising the price of a good or service, the demand for it decreases automatically (as opposed to changes in other factors that determine a shift in the curve itself).

However, the variation in the amount or quantity of goods and services demanded is not always linear to the price change. So when prices generally go up, then people stop buying those goods, and if prices go down people will be more likely to buy them.

Shifting the demand curve

Shifting the demand curve
If different price changes occur (such as in consumer habits to catch on a product or be of use due to the emergence of another, etc.), a shift in the demand curve occurs. This means that at the same price will be more or less interested in demanding that good or product. When supply and demand

Balance between supply and demand

In a normal situation, the market is balanced, in equilibrium. They offer as much demand. That is all there is to sell is sold (no more, no less demand for that particular good or service that is offered on the market).So in the long term the market itself will tend to reach the equilibrium point between the supply and demand, that is why is an economic law. In economics this theory law is one of the most studied and analysed in the economic history of all countries. Government spend many resources to optimize their markets.

Excess demand

If eg snore much the price of goods will increase its demand (plus interest thereon) while also descend the quantity (it would be less profitable and therefore would be less interested in offer).

There is then an excess demand, ie many buyers interested in purchasing while a market that offers fewer goods and services.

In that case you will not be balanced until it reaches a new equilibrium in the market. When the supply and demand fall in the normal levels following the law…



Excess supply

If the price of a good rises, again the balance is left. There will be more vendors interested in selling (and that profitability will be higher) but also fewer buyers interested in buying (because the price is higher). This situation is known as excess supply.

In the same way as in the previous case the market will not be balanced until a new equilibrium in which you bid as much as you demand.