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Supply and Demand Essay: Law Basics

In order to make the economy properly function, the producers are required to supply all goods that are required by the consumers. This is what they call the supply and demand law. When the matter concerns “supply”, it is related to the overall amount of goods that can be produced within the market. At the same time, “demand” is usually related to the amount of goods that the consumers want to purchase. Being combined these elements form the most important principle of the economic theory.

When one is aware of the supply and demand law, it is easier to get an idea of how the goods’ prices are set within the market. As a rule, the process if started the very moment the consumers require some goods. In case the demand is high, the producers have an opportunity charge high prices for the items they sell. Ability to earn huge sums of money makes the producers provide goods in order to meet the consumers’ demands. But according to the law of demand, in case the prices are sky high, only a small amount of consumers will ever buy the goods. This means that the demand will soon get unmet. In order to comply with the demand, the producers are required to set a price that will lead to the desired amount of sales, as well as personal profits.

The very moment that supply is getting absolutely balanced with demand, the market reaches equilibrium. At this point, all the resources are usually used at the maximum efficiency. In general, it’s not a mistake to state that the whole study of economics is mainly related to how the market economies can reach the desired equilibrium. That is why a economists from all parts of the globe spend a lot of time and efforts analyzing the aspects of relationship between supply and demand.

The law of supply and demand provides us with the explanations regarding why the individuals take these or those actions in a market economy. Moreover, it can also be used in order to predict certain economic outcomes. The producers, who wish to set the highest prices for their goods, make use of inventory management protocols and spend a lot of funds on advertising in order to encourage their potential clients to purchase their products. All the consumers, who tend to value a low price over the product quality shop at various discount shops, while the ones who give preference to popularity over the price buy goods from the retail shops at the market height.

To sum up, it is important to mention that the law of supply and demand is not just limited to the goods’ sales. It is also successfully applied when one needs to provide explanations for almost every economic phenomenon. Thus, the law of supply and demand is not only crucial for the economic theory as a whole, but it serves as a basis for the economics itself.

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