The laws of supply and demand affect all goods in the market. They describe tendencies in human action, not characteristics inherent in one good or another. The degree to which prices respond to changes in supply and demand is known as price elasticity.

Price Inelasticity of Goods

Goods that are highly inelastic react less dramatically, but that does not mean the laws of supply and demand no longer apply.

The only possible circumstance where real supply and demand do not affect a good is in cases where the government fixes production and consumption, essentially controlling how much is created while forcing purchases from domestic consumers. Even with this circumstance, though, international supply and demand are likely impacted.

Laws of Supply and Demand

For a good to have no impact on human tendencies, it must be ignored by human beings in every economic sense.

An example of such a good is seen in petroleum-based oil prior to the discovery of oil fields in the 1850s. Even though underground oil existed prior to this point, humans had not discovered it and therefore knew of no useful purposes for it. The economic supply, in a sense, was zero. For this reason, the economic demand was also zero.

In market economies, prices reflect the degree of value consumers place in a good or service. All else being equal, consumers are willing to pay more for goods they value highly. In relation to that, producers would want to shift their resources toward those ends that generate the most revenue.

Therefore, the law of supply states that the quantity supplied of a good tends to increase as its price increases. Meanwhile, the law of demand states the demanded quantity of a good tends to decrease as its price increases.

Neither of these laws claims to be absolute. Prices, supplies or quantities demanded doesn't need to shift if other factors prohibit it. For instance, no more drawings or paintings from Michelangelo can be produced, but that does not mean tendencies in human nature stop having an effect.