What does the law of supply and demand predict in a market economy?

Answer 1

The law of supply and demand predicts that in a market economy, the price of a good or service will adjust to balance the quantity supplied by producers and the quantity demanded by consumers. When demand for a product increases, prices tend to rise, encouraging producers to supply more. Conversely, if demand decreases or supply increases, prices generally fall, leading to a decrease in production. This interaction helps allocate resources efficiently and determines the overall market equilibrium.