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The Law of Supply and Demand
The law of supply and demand is an economic model that states that the equilibrium price of a product
or service is determined by the interaction of supply and demand
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The law of supply
and demand is used to understand how the supply of a product and the demand for a product
determines the price of a product
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However, the theory, which is one of the most well-known
in economics, was recognized in the marketplace long before it was referenced in a published work—
or even given its name
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People are generally prepared to supply more and demand less when
the price of an item rises
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As part of a conversation concerning interest rates in 17th-century
England, Locke discussed the notion of supply and demand
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Locke
maintained that rates should be established by the free market since government control may have
unexpected consequences
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According to Locke, "The price
of any commodity rises or decreases in proportion to the percentage of buyers and sellers
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Sir James Steuart
The earliest recorded written usage of the word "supply and demand" was in Sir James Steuart's
Inquiry into the Principles of Political Economy, published in 1796
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Steuart observed that when supply levels exceeded demand, prices fell dramatically, reducing
merchant profits
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Adam Smith

The Wealth of Nations, Adam Smith's 1776 epic economic book, dealt extensively with the subject
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The invisible hand, according to Smith, is the economy's
automated pricing and distribution systems
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It is crucial to note, however, that Smith's theories have not been without criticism in the years since
they were originally published
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Furthermore, Smith failed to adequately explain pricing or a theory of value, and he overlooked the
significance of the entrepreneur in breaking down inefficiencies and generating new markets
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Alfred Marshall's Principles of Economics, published in 1890, devised a supplyand-demand curve that is still used to show when the market is in equilibrium
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In principle, as the
price of a commodity rises, consumers buy less of it, but Marshall observed that this was not always
the case in practice
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Items
like medication or food that customers consider essential to everyday living are examples of inelastic
products
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Ibn Taymiyyah
Though these theories are often highlighted when examining the origins of the law of supply and
demand, other researchers from throughout the world also contributed to its development
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He talked about how
prices are set by demand and supply, not by the unfair behavior of the persons participating in the
transaction
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For example, a company presenting a new
product may purposefully attempt to raise the price of the product by building consumer demand
through advertising
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In this case, supply would be reduced while demand would
be increased, resulting in a higher price
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People are often inclined to supply more and demand less when prices rise,
and vice versa as prices fall
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A company decides to charge $10
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Because no one wants the goods, the price
is reduced to $9
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At the new lower price point, demand for the product grows, and the
corporation begins to generate money and profit
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00 to stimulate demand even more, but the increase
in the number of individuals purchasing the product would not compensate for the money
lost when the price was reduced from $9
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00
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00 because it is the point at which supply and demand are balanced
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