What is the principle of supply and demand?

Answer 1

Supply and demand are two independent variables.

Supply is the amount of product being sold while demand is the amount of product that consumers wish to buy.

When these two are the exact same, they are known to be at their equilibrium.

In the short term, it can be assumed that all other things the same, when price goes up demand will go down causing a surplus.

This also works the other way; if price goes down and more consumers want the item, however there is a finite amount being produced, there will probably be a shortage.

This is a rather broad and generalized explanation.

Answer 2

Any potential producer of a product or a service needs first to determine the need for such goods. This is usually done through companies that do research by contacting either the public through surveys, or to specific companies that might require those services. They also inform you as to what other people or companies are also providing those services or goods, and if there is any available room in the market for a new comer. This then determines demand. This also determines the available supply to fill the demands. It is much like water always attempting to find equalibrium.

Answer 3

The higher the supply of an item is, the lower the price. The higher the demand of an item is, the higher the price. Supply and demand is a contrasting concept that allows basic economic systems to function.

Answer 4

According to Mankiw et al., there are ten fundamental principles of economics:

1) Scarcity exists. People face trade-offs.

2) The cost of something is what you give up to get it (opportunity cost).

3) Rational people think at the margin.

4) People respond to incentives.

5) Trade can make everyone better off.

6) Markets are usually a good way of organising economic activity.

7) A country's standard of living depends on its ability to produce goods and services.

8) Government intervention can sometimes improve economic outcomes.

9) Inflation is caused by governments printing money.

10) There exists a trade-off between inflation and unemployment.

Answer 5

The general principle behind supply and demand is that prices are determined by the current availability of a item and the current quantity demanded by a population. Businesses will charge more for a rare product wanted by many, and will need to charge less for a product that is plentiful or that fewer people want. This process often acts independently of the inherent usefulness of the product itself: rare diamonds cost a fortune, in comparison to water, which is necessary for life, but plentiful and thus cheap. Prices change over time depending on these factors. While these are the basic principles, economists can (and have) written thousand-page books of real world observations and modifications of the theory.