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Depending on the economic climate supply and demand curves can move or shift either way, thus altering price and quantity structure. Sellers will want maximum possible high price while buyers will be looking maximum possible lowest price for the goods and services. Sellers and buyers needs to keep fighting for the price to sell and buy. When all things are equal nothing will happen. For the life and everything else in this universe to continue we need minus and plus. It's just a temporary point that may be reached from time to time for a brief period. However, in reality equilibrium cannot be sustained. For example we have 20 products for sale and 20 people willing to buy.
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It's the intersection point where market reached optimum efficiency. Equilibrium represent the ideal quantity and price match. Putting Supply and Demand togetherįigure 2 For the purposes of simplicity, Supply and Demand lines are drawn as straight lines. At lower prices, people tend to buy some goods and services as a substitute for more expensive ones. At a lower price, more people can afford to buy more goods and services more frequently, than they can at a higher price. In order to save some money, people will buy more products at lower prices. At certain price levels, when there is a good enough profit margin, suppliers will increase their productions without demanding higher prices in order to increase profits. The supply increases as prices increase and decreases as prices decrease. In order to maximize their profits, suppliers will be offering more products and services for sale at higher prices. Or buyers will not increase their buying even if prices are going down when they don't have a buying power. That's in theory, but in reality we know that there are situations when prices are going up but suppliers will not increase their output unless there are healthy competition. A clear conflict of interest supposes to create a healthy and efficient market. Prices may also be manipulated by speculators unnaturally thus overriding basics laws of supply and demand.įigure 1 As it can be seen on the above illustrations, suppliers will produce more when prices going up while buyers will increase their demand when prices are going down. Monopolies and regulators in certain sectors or systems can define prices as they like regardless of buyers. However, in reality this is not always the case. In an ideal open market, prices are defined by supply and demand, creating a base framework for allocating resources in the most efficient way possible. Supply and Demand in textbooks look as two separate things for study purposes but in reality they are strongly interconnected. Since market economy is based on exchange of goods and services for a value, for it to function there has to be some goods and services on offer and people who are willing and able buy them. Supply and Demand Trading What is Supply and Demand? What are the laws of Supply and Demand? What is Supply and Demand trading? How do we use Supply and Demand trading in forex and other financial markets? Supply and Demand is the heart of a market economy.