What is the Law of Demand and Supply?

There are two sides to a Market: the consumers and the producers.

From our Marginal Analysis article, we established that under normal circumstances, if the price goes up, the demand for that product goes down, and on the same token, if the price for that product goes down, the demand for that product goes up.

It is important to see this relationship from both perspectives so we can understand the motives behind both consumer and producer choices:

Producers want to generate more revenue, so they are willing to produce more at a higher price and on the other hand,

Consumers are willing to get a larger quantity of the product if the price is lower.

The intersection between these two curves is called the Equilibrium that can be seen in an Equilibrium Quantity and a corresponding Equilibrium Price.

This point is also called Market Equilibrium.