Let's look further into how price affects supply and demand.

Supply and demand curves.

This diagram shows supply and demand curves.

The vertical axis represents the price of the product, and the horizontal axis represents its quantity.

The supply curve shows how the supply of products is affected by changes in price.

The demand curve shows how the demand for a product is affected by changes in price.

The law of supply.

The law of supply states that as the price of a product goes up, supply will also go up.

When the market price is high, sellers will create more supply because they want to make more money.

On the other hand, if the market price declines, less supply will be created.

  The law of demand.

The law of demand states that as the price of a product goes up, demand will go down.

That's because fewer consumers want to buy a product if they think the price is too high.

However, if the price goes down, there will probably be a greater demand.

The diagram shows that as price increases, the quantity of supply also increases.

Luxury goods violate the law of demand because people are often willing to buy them despite their high prices.

A supply curve shows how the quantity supplied by businesses is affected by changes in price.

The demand for a product decreases as its price increases.

Price elasticity.

Price elasticity indicates how the demand for a product is affected by its price.

If people buy more or less of a product as its price changes, the demand for it is elastic.

On the other hand, if demand is not affected by price, it is inelastic.

For example, people will pay for water even if the price is high, because they need it to survive.

Equilibrium.

Equilibrium occurs when supply and demand in the market are balanced.

In the diagram. It is the point where the demand curve meets the supplier.

When the market is an equilibrium, there is neither a shortage nor a surplus.

If consumers buy less of a product as its price goes up, the demand for the product is elastic.

Where does the equilibrium occur on the diagram?

Equilibrium is the point where the demand curve meets the supplier.

What happens when supply and demand of products are balanced?

Equilibrium occurs when supply and demand in the market are balanced.

The demand for electricity is inelastic because people need to live regardless of the price.

When supply and demand reach equilibrium, there is neither a surplus nor a shortage.

  Equilibrium is when the amount of product available equals to the amount that consumers want to buy.