Question

Detailed explanatio on the impact that supply and demand have on pricing?

Answer 1

In a competitive market, prices are determined by the forces of demand and supply. As the demand and/or supply adjust to various external factors, equilibrium prices are also adjusted accordingly. When the demand for a product increases (holding supply unchanged) the demand curve for the product shifts out and thus the equilibrium price increases. On the other hand, if the demand for a product decreases say due to decline in taste or decrease in the price of substitutes, then the demand curve shifts left (assuming supply does not change) and the equilibrium price falls. When the supply of a product increases (assuming demand unchanged) then the equilibrium price decreases. And if the supply decreases, then the equilibrium prices increase. If the supply increases and demand decrease, then the equilibrium price decreases. If the demand increases and the supply decreases, then the equilibrium price increases. If the demand and supply both increase or decrease, then the direction in which the equilibrium price moves will be uncertain and will depend on which of the two forces have a greater impact.