Question

write a paragraph or two describing each concept below AND provide each with a real life example

law of supply

law of demand

Answer 1

• The law of demand states that, when the price of any good or a service increases then it's quantity demanded will decrease and when the price of the good or a service decreases, then it's quantity demanded will increase.
• This is because when the price of any good increases, people will be less Willing to purchase that good, which leads to a fall in the quantity demanded of that good. This will eventually shift the demand curve towards left.
• Similarly when the price of any good increases, people will be more willing to purchase that good, which leads to a rise in the quantity demanded of that good which eventually shifts the demand curve towards right.
• For example, when the price of video games sold by a firm, Increases then people's demand for those games decreases as they turn towards less costly ones. Similarly when this firm decreases the price of video games, then quantity demanded will eventually increase as more people will be willing to purchase them.
• The law of supply states that, when the price of any good increases, then the quantity supplied of that good also increases when all other factors are held constant. This will shift the supply curve towards right.
• Similarly when the price of any good decreases, then the quantity demanded of that good also decreases when all other factors are held constant. This will shift the supply curve towards left.
• The reason behind this law is that price and quantity supplied are directly proportional to each other.
• For example, when the price of bread decreases, suppliers will supply less quantity of bread in the market as the they will receive very less profits and will have to face a higher production cost. But when the price of bread increases, the quantity supplied will also increase as the firm's can make more profit from higher prices.