What Is the Law of Supply and Demand?

The law of supply and demand is a theory that describes how sellers of a resource interact with buyers of that resource. The idea describes the link between a good’s or product’s price and people’s willingness to buy or sell it. People are often prepared to supply more and demand less when prices rise, and vice versa as prices fall.
The law of demand and the law of supply is the foundations of the theory. The two laws work together to establish the real market price and volume of commodities.

The law of supply is a basic principle in economics that asserts that, assuming all else being constant, an increase in the price of goods will have a corresponding direct increase in the supply thereof. The law works similarly with a decrease in prices.

The law of supply depicts the producer’s behavior when the price of a good rises or falls. With a rise in price, the tendency is to increase supply because there is now more profit to be earned. On the other hand, when prices fall, producers tend to decrease production due to the reduced economic opportunity for profit.