The law of supply and demand helps to establish an equilibrium in the market. Basically, it refers to the relationship between the quantity of a commodity that producers wish to sell at various prices and the quantity that consumers wish to buy. Therefore, an equilibrium in the market occurs when there is a balance between the number of goods in supply and the quantity demand by the consumers. This is the most fundamental concept in economics after understanding the basic concepts of these aspects, then it is easier for a person to master other aspects of economics. This is because daily sales actions require an understanding of these concepts.
Read more on supply and demand and equilibrium in the market at;
THE ROLE OF SUPPLY AND
DEMAND IN ECONOMICS
Supply and demand play different roles in economics. Firstly, they determine the prices of goods and quantities of produce. This is because an increase in the consumption of goods leads to an increase in demand. As demand increases, the supply decreases therefore there is a need to increase supply thus satisfy demand. Therefore, the relationship between these two aspects helps to set the prices right. It also helps businesses to understand consumer behavior using graphs that chart equilibrium in the market. This is because it helps to dictate which products the business should produce and sell due to the high demand by the consumers. Therefore, businesses can predict the future of the demand for goods and services.
Read more on the role of supply and demand in economics at;
EXAMPLE OF EQUILIBRIUM IN THE MARKET
An example of equilibrium in the market is whereby a person produces a television that retails at $2,500. Unfortunately, there is an increase in the production of the televisions and the warehouse is filing up since other competitors are producing the same kind of television. As a result, the person decides to lower the wholesale price to $2,250 and the production rate is cut by 25%. This, therefore, helps to clear the existing inventory. When doing the monthly reviews, the person realizes that the price reduction did work. And therefore they decide to reduce the price more to $2,100 and retain the rate of production. Consequently, when reviewing at the end of the month, the person realizes that there is an increase in purchases. This, therefore, shows that there is a balance in supply and demand thus creating equilibrium.
Read more on an example of equilibrium in the market at;
Additional attachments
>> Download
