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Why Supply and Demand Is Important to You and the Economy


If you’re the only person selling water in the desert, you can pretty much charge whatever you like. If you’re selling sand, you’d better be selling it cheap.

More Economy Explained: What Is the GDP – and What Does It Have to Do With You?

Like gravity is to physics, the law of supply and demand is the bedrock principle of all economic theory. It determines where the price of a product or service intersects with the willingness of people to buy it or sell it. It never changes and it affects virtually everything you buy, sell, do and earn.

There’s the Law 0f Supply and the Law of Demand

In an unimpeded market, supply and demand determine the value of a product or service. Supply represents the amount of something that producers are introducing to the market. Demand represents the amount of that thing that consumers want to buy.

When more people want it and fewer people have it, the price goes up. When fewer people want it or more people start selling it, the price goes down.

There are two forces at work: The law of supply: If everything else remains the same, demand drops when prices […]

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