Activity 4: Search and explain the ff:

Law of Supply and Demand in Economics: How It Works.

- The law of supply and demand combines two fundamental economic principles
describing how changes in the price of a resource, commodity, or product affect its
supply and demand. As the price increases, supply rises while demand declines.
Conversely, as the price drops supply constricts while demand grows.

The Law of Demand

- The law of demand states that other factors being constant (cetris peribus), price and
quantity demand of any good and service are inversely related to each other. When the
price of a product increases, the demand for the same product will fall.

- Law of demand explains consumer choice behavior when the price changes. In the market,
assuming other factors affecting demand being constant, when the price of a good rises, it leads to
a fall in the demand of that good. This is the natural consumer choice behavior. This happens
because a consumer hesitates to spend more for the good with the fear of going out of cash.

The Law of Supply

- The law of supply is the microeconomic law that states that, all other factors being
equal, as the price of a good or service increases, the quantity of goods or services that
suppliers offer will increase, and vice versa.

- The law of supply says that as the price of an item goes up, suppliers will attempt to
maximize their profits by increasing the number of items for sale.

Equilibrium Price

- An equilibrium price, also known as a market-clearing price, is the consumer cost

assigned to some product or service such that supply and demand are equal, or close to
equal. The manufacturer or vendor can sell all the units they want to move and the
customer can access all the units they want to buy.

Why is the Law of Supply and Demand Important?

- Supply and demand have an important relationship because together they determine the
prices and quantities of most goods and services available in a given market. According
to the principles of a market economy, the relationship between supply and demand
balances out at a point in the future.