How is price affected by the law of supply and demand?

Answer 1

The law of supply and demand helps determine the price of the item because when supplies of goods and services become plentiful, prices tend to drop. When supplies become scarcer, prices tend to rise.

More specifically, if I'm selling 10 bananas and only five people want a banana, then I have too many bananas. I will drop my prices to try and get people to buy more bananas. On the other hand, if I have 10 bananas and twenty people want a banana, then I don't have enough bananas. I will raise my prices as some would be willing to pay more to ensure that they get a banana.
As the number of an item increases, the price decreases. As the number of an item decreases, the price increases. The reason for this is that if there are more people that want an item than there are items, the price has to go up to make it go to only those that can afford it. When there are way more items than there are people that want it, then the price goes down to make more people want it.

Answer 2

When supplies of goods and services become plentiful, prices tend to drop. When supplies become scarcer, prices tend to rise.

The relationship is easiest to see by first drawing a demand curve for a good (say, sneakers) on a graph, where the x-axis shows the number of sneakers that can be produced, and the y-axis shows the range of increasing price levels at which those sneakers might be sold. At low price levels, the demand for sneakers will be high, but as the prices gets higher, the demand for sneakers will becomes less, because fewer people will be willing - or able - to pay the price as it goes up. So the demand curve is shaped like this: \ . In other words, it's downward-sloping ("d" for demand, and for "downward" is a good way to remember what a demand curve looks like!) It illustrates that fact that the higher the price is for a good, the less of that good buyers will be willing to buy (because buyers don't have unlimited discretionary income!). On the supplier side, the supply curve shows the number of sneakers manufacturers are willing to produce at the same price levels on which we plotted the demand curve . This curve goes in the opposite direction of the demand curve. If sneakers command low prices, not many sellers will be willing to produce them. Even though a lot of buyers would be willing to buy them at very low prices, the prices would be too low for the manufacturers to make a profit, and the manufacturers would keep losing money with every pair they sold. But the higher the price sneakers fetch, the more of them the suppliers will be willing to supply. The supply curve is upward-sloping, and is shaped like this: /. It illustrates the fact that the lower the price they could charge for a good, the less of it they will be willing to supply (because it doesn't pay!). If the two curves are plotted on the same graph, they will intersect at one point, and the point at which they intersect is at the "equilibrium" price and quantity on the graph. That is the point at which the number of sneakers buyers are willing to buy at the equilibrium price is exactly the same as the number of sneakers suppliers are willing to sell for that price.

When demand for a product is high, but the supply is low, the price will usually go up. For example: during the holiday season there are usually some "hot" toys that millions of people want to buy. The supply of that toy may be limited, so the manufacturer or retailer could choose to increase the price.

Similarly, a consumer who owns a hot product can re-sell it for a high dollar amount. A good example of that is someone who purchased a WII when they debuted, and then sold it on EBay for about ten times the original price.

When demand for a product is low, but the supply is high, the price will usually go down. For example: after the holiday season, stores may have a large amount of a particular item left over. Consumer interest for this item might also drop drastically. In that case, the price for the item may decrease. This is done to (hopefully) entice people to purchase the item.

Answer 3

If there is an abundant supply of an item, the price will usually fall. If there is a big demand for an item, and a limited supply, the seller can put the price up ans still sell the item. As demand falls away, after the early buyers have purchased the item, the seller will lower the price to encourage more sales.

An example of this is big screen TVs. Early plasma TVs sold for 12,000 to people who love to have the newest latest model. They are now selling for under 2,000, with heavy competition from LCD and LED TVs

Answer 4

its quite simple really, when a resource is scarce and there is a reflective demand for the item prices will rise as consumers will pay more for this rare item. On the other hand if the resource is plentiful and easily attainable consumers will look for the best (lowest) prices or not be willing to pay much at all if the item can be found everywhere.

Answer 5

If an item is in short supply or demand increases, then the price typically goes up. Conversely, if there is an overabundance of an item or demand is not that great, then the price goes down.