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The law of supply and demand, which dictates that a product's availability and demand impacts its price, was noticed in the marketplace long before it was mentioned in a published work. Philosopher John Locke is credited with one of the earliest descriptions of this economic principle in his 1691 publication of "Some Considerations on the Consequences of the Lowering of Interest and the Raising of the Value of Money."

Locke did not actually use the term "supply and demand," which first appeared in print in 1767 in Sir James Steuart's "Inquiry into the Principles of Political Economy." Adam Smith dealt extensively with the topic in his 1776 epic work, "The Wealth of Nations."

John Locke

Locke addressed the concept of supply and demand as part of a discussion about interest rates in 17th-century England. Many merchants wanted the government to lower the cap on interest rates charged by private lenders so that people could borrow more money and thus purchase more goods. Locke argued that the free-market economy should set rates because government regulation could have unintended consequences. If the lending industry were left alone, interest rates would regulate themselves, Locke wrote: "The price of any commodity rises or falls, by the proportion of the number of buyers and sellers."

Sir James Steuart

When Steuart wrote his treatise on political economy, one of his main concerns was the impact of supply and demand on laborers. Steuart noted that when supply levels were higher than demand, prices were significantly reduced, lowering the profits realized by merchants. When merchants made less money, they could not afford to pay workers, resulting in high unemployment.

Adam Smith

Smith, often referred to as the father of economics, explained the concept of supply and demand as an "invisible hand" that naturally guides the economy. Smith described a society where bakers and butchers provide products that individuals need and want, providing a supply that meets demand and developing an economy that benefits everyone.

Alfred Marshall

After Smith's 1776 publication, the field of economics developed rapidly. In 1890, Alfred Marshall wrote "Principles of Economics," where he explained how supply and demand, costs of production and price elasticity work together. Marshall developed the supply-and-demand curve that is still used to demonstrate the point at which the market is in equilibrium.

One of Marshall's most important contributions to microeconomics was his introduction of the concept of price elasticity of demand, which examines how price changes affect demand. In theory, people buy less of a particular product if the price increases, but Marshall noted that that was not always true. The prices of some goods can increase without reducing demand, which means their prices are inelastic. Inelastic goods tend to include items, such as medication, that consumers deem crucial to daily life.

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