Law of Demand and Supply

Demand and supply are perhaps one of the most fundamental concepts of economics and it can be said that they are the backbone of a market economy. Demand refers to how much quantity of a product or service buyers are willing to buy at current market price while supply refers to the amount of a certain good producers are willing to supply at current market price.

Law of demand states that, that, all other factors being equal, as the price of a good or service increases, demand of the consumer for the goods or services will decrease and vice versa. This happens because at higher prices consumer has to pay more money for buying same amount of goods and services which he was buying when prices were low.

While law of supply states that higher the price of goods or services higher the quantity supplied. This happens because by supplying more quantity at higher price producers of goods and services will be able to generate higher revenue and hence will make profit.

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