Supply and demand are market forces that determine the price of a product. An example is when customers are willing to buy 20 pounds of strawberries for $2 but can buy 30 pounds if the price falls to $1, or when a company offers 5,000 units of cell phones for sale at a price, and only half of them are bought.Know More
Demand indicates the willingness of potential customers to buy a product at a specific price, while supply is the amount of a product that’s available for sale at a given price. The price is a major determinant of demand, although consumer tastes and income, and prices of alternative or complementary products also have an impact. Supply is also determined by price, as traders are willing to offer more for sale when prices are high. Other supply determinants include: cost of production, competition and producer expectations.
An equilibrium price is achieved when the demand of a product equals its supply. If supply exceeds demand, sellers reduce prices to encourage buying, which leads to market equilibrium. If there is more demand for a product than the amount available for sale, sellers hike prices to achieve equilibrium.
The law of demand and supply may also apply in provision of services, such as college education.Learn more about Economics
Price elasticity, or price demand, is the measure of how much the demand of a product can respond to a change in its price. Price elasticity is an important concept in the law of supply and demand.Full Answer >
Examples of products that have elastic supplies are specifically branded items that have alternatives like Campbell's soup, Marlboro cigarettes and Porsche vehicles; products that have inelastic supplies are cigarettes, gasoline and salt. Products that have an inelastic supply are products that do not have a viable alternative, and buyers will continue to buy them despite the price increase.Full Answer >
Price elasticity of demand has four determinants: product necessity, how many substitutes for the product there are, how large a percentage of income the product costs, and how frequently its purchased, according to Economics Help. By using these determinants, businesses can estimate how a change in the price affects demand.Full Answer >
Examples of price ceilings include rent control in New York City, apartment price control in Finland, the Victorian Football League ceiling wage, state farm insurance in Australia and Venezuela’s price ceilings on food. Price ceilings set the maximum price that can be charged on a product or service in the market. They are usually set by law and restrict the seller's pricing system to guarantee fair and reasonable business practices.Full Answer >