The law of demand and supply studied in Economics; is very effective in understanding the market economy. This law states that there is a direct relation between the demand of a resource and the supply of a resource. If we talk about it in detail, we will see that the higher the demand of a product, the higher will be its supply in the market and vice versa. Suppose, in winters, the need for sweaters increases. Hence the production of sweaters will increase to satisfy the increasing demand. It should be noted that the price is also directly proportional to the increase or decrease in the request of a product.
So how do we measure the relationship between demand and supply of a market? For theoretical purposes and learning, the economists uses graph. A graph is created by taking two factors that are price and quantity. Price of a product is kept at y-axis and the quantity of a product is kept at x-axis. The supply and demand are measured by the curves on it, which meets at a point of ‘equilibrium’. The state of equilibrium means that the supply and demand are at an equal state hence the individuals, firms or countries are satisfied with the economic condition. However, in the real world, that seldom happens, because all around the globe, the resources are limited and the population is enormous.
Another important economic concept that is widely used is called ‘Cross-Elasticity of Demand’. This means that when the price of a good becomes high, people shift towards a substitute good. For example, when the price of coffee increases, people drink more tea.
To understand a market in a better way, the individuals should know the basic laws of Economics. It also helps the companies in manufacturing the amount of products that are equivalent to the demand in the market.
So how do we measure the relationship between demand and supply of a market? For theoretical purposes and learning, the economists uses graph. A graph is created by taking two factors that are price and quantity. Price of a product is kept at y-axis and the quantity of a product is kept at x-axis. The supply and demand are measured by the curves on it, which meets at a point of ‘equilibrium’. The state of equilibrium means that the supply and demand are at an equal state hence the individuals, firms or countries are satisfied with the economic condition. However, in the real world, that seldom happens, because all around the globe, the resources are limited and the population is enormous.
Another important economic concept that is widely used is called ‘Cross-Elasticity of Demand’. This means that when the price of a good becomes high, people shift towards a substitute good. For example, when the price of coffee increases, people drink more tea.
To understand a market in a better way, the individuals should know the basic laws of Economics. It also helps the companies in manufacturing the amount of products that are equivalent to the demand in the market.