Law of supply and demand
DESCRIPTION
An economic principle of free markets in equilibrium that holds that prices are determined such that demand equals supply, and where changes in prices are a result of a shift in demand and/or supply.
An economic principle of free markets in equilibrium that holds that prices are determined such that demand equals supply, and where changes in prices are a result of a shift in demand and/or supply.
KEY INSIGHTS
In free markets, the law of supply and demand asserts that the prices and quantities of goods produced are determined by the relationship between supply and demand. When either the demand or supply for goods changes, the result will be either changes in prices or in the quantities of goods produced, or both, in order to achieve equilibrium in the market.
In free markets, the law of supply and demand asserts that the prices and quantities of goods produced are determined by the relationship between supply and demand. When either the demand or supply for goods changes, the result will be either changes in prices or in the quantities of goods produced, or both, in order to achieve equilibrium in the market.
KEYWORDS Demand, supply, prices, market equilibrium
IMPLICATIONS
Marketers involved in marketing strategy development and implementation should strive to understand how and to what extent the relative balance or imbalance between demand and supply may potentially influence the prices of the marketer’s offerings. As marketers are constantly engaged in managing demand relative to supply for products and additionally frequently concerned with setting prices, an appreciation of the law of supply and demand and its implications for the marketing strategies of the firms’ offerings is essential.
Marketers involved in marketing strategy development and implementation should strive to understand how and to what extent the relative balance or imbalance between demand and supply may potentially influence the prices of the marketer’s offerings. As marketers are constantly engaged in managing demand relative to supply for products and additionally frequently concerned with setting prices, an appreciation of the law of supply and demand and its implications for the marketing strategies of the firms’ offerings is essential.
APPLICATION AREAS AND FURTHER READINGS
Marketing Strategy
Einav, Liran, Orbach, Barak Y., and Olin, John M. (2001). Uniform Prices for Differentiated Goods: The Case of the Movie-Theater Industry. Cambridge, Mass.: Harvard Law School.
Einav, Liran, Orbach, Barak Y., and Olin, John M. (2001). Uniform Prices for Differentiated Goods: The Case of the Movie-Theater Industry. Cambridge, Mass.: Harvard Law School.
Brewer, P. J., Huang, M., Nelson, B., and Plott, C. R. (2002). ‘On the Behavioral Foundations of the Law of Supply and Demand Human Convergence and Robot Randomness,’ Experimental Economics, 5(3), 179–208.
BIBLIOGRAPHY
Gale, D. (1955). ‘The Law of Supply and Demand,’ Mathematica Scandinavica, 3, 155–169.
Gale, D. (1955). ‘The Law of Supply and Demand,’ Mathematica Scandinavica, 3, 155–169.
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