Law Of Supply And Demand Flashcards, test questions and answers

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What is Law Of Supply And Demand?

The Law of Supply and Demand is one of the most important principles in economics. It states that when supply is greater than demand, prices tend to drop; while when demand is greater than supply, prices tend to rise. In other words, price fluctuations are a result of imbalances between what buyers want to purchase and what sellers want to sell. This law has broad implications for all economic decisions from individual consumer purchasing choices to macroeconomic policymaking.At its core, the Law of Supply and Demand helps explain why certain products or services may be more expensive than others at any given time. If there’s an increase in demand but limited supply (such as with luxury items like cars), then prices will likely go up as buyers compete for limited resources. On the flip side, if there’s an oversupply situation (for instance during times when some crops have been abundant), then this can cause prices to go down in order to encourage more people to buy those goods and services instead of waiting until later when they may be scarce again. Additionally, it’s important to note that changes don’t always happen instantaneously due to shifts in the market they usually take place gradually over time so as not alarm potential consumers who may be reluctant about sudden increases or decreases in pricing levels. As such, businesses must be aware of how their actions could affect this delicate balance between supply and demand otherwise they risk losing out on profits or having their offerings become too costly for customers at large scale markets where competition can often drive down prices even further still. Ultimately, understanding the Law of Supply and Demand provides insight into how we make economic decisions both individually and collectively and it’s essential knowledge for anyone looking towards a career in economics or business management fields alike.