Law Of Supply And Demand


DEFINITION of 'Law Of Supply And Demand'

A theory explaining the interaction between the supply of a resource and the demand for that resource. The law of supply and demand defines the effect that the availability of a particular product and the desire (or demand) for that product has on price. Generally, if there is a low supply and a high demand, the price will be high. In contrast, the greater the supply and the lower the demand, the lower the price will be.


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BREAKING DOWN 'Law Of Supply And Demand'

The law of supply and demand is not an actual law but it is well confirmed and understood realization that if you have a lot of one item, the price for that item should go down. At the same time you need to understand the interaction; even if you have a high supply, if the demand is also high, the price could also be high. In the world of stock investing, the law of supply and demand can contribute to explaining a stocks price at any given time. It is the base to any economic understanding.

  1. Elastic

    A situation in which the supply and demand for a good or service ...
  2. Inelastic

    An economic term used to describe the situation in which the ...
  3. Underconsumption

    The purchase of goods and services at levels that fall below ...
  4. General Equilibrium Theory

    General equilibrium theory studies supply and demand fundamentals ...
  5. Economic Equilibrium

    A condition or state in which economic forces are balanced. These ...
  6. Theory Of Price

    An economic theory that contends that the price for any specific ...
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