I'm having a hard time understanding the laws of Supply and Demand?

Question

In High School - we were taught simply supply and demand basics. Price goes up, supply goes up. When demand goes up, price goes up.

So in college course we are taught - If price goes up, Supply goes up. If price goes up, Demand goes down.

But if demand goes down, wouldn't price and supply go down as well?

Supply refers to the quantity of products that producers are willing to offer for sale at different market prices.

Demand refers to the quantity of products that consumers are willing to buy at different market prices.

Answer 1

You need to learn and understand the basic supply & demand curves. Surely you've seen that but if not search google images for it.



The supply curve represents the will and ability of suppliers to sell things at the prices and quantities traced out by the S curve. And the demand curve shows consumers' will and ability to buy at prices and quantities traced out by the D curve. In a free market, where they cross is the prevailing price and quantity of products sold

Answer 2

Well, I think you need to start over.



There is a Demand function, curve or schedule which relates how many items will be wanted for given set of prices. Then there is the quantity demanded, which is simply a single amount corresponding to a single price.



People often use the word 'demand' for both things, and it is very confusing.



An 'increase in the demand curve' means an increase in each quantity demanded for each price.

Answer 3

ok, really the demand is a combination of different quantities that consumers are willing to buy a various prices.



So for example if blue berries are $1.99 a pint, each customer might by eight pints, but if blue berries are $3.99 a pint, each customer might by only 3 pints.



So if the price of blue berries goes from $1.99 to $3.99, the actual number of pints of blueberries sold at the higher price will probably go down. But demand has not really gone down. I would say your college course was not clear in its thinking. The demand for blue berries, if they were sold at $1.99, is the same as before. It is just that at the higher price of $3.99, fewer pints of blueberries would be sold. People still like blue berries just as much. The demand has not really changed except that the price has changed. The demand at $3.99 a pint has gone down compared to the demand at $1.99 a pint. But the demand would not have changed if the price had not changed.



The thing is, at $3.99 a pint there are alternative uses for the money that the customer would rather spend the money for. For example, at $3.99 a pint, maybe customers can get raspberries in place of blueberries. Or maybe they can still get strawberries at $1.99, and even though they don't like strawberries quite as much, they would rather buy more strawberries at $1.99 than buy fewer blue berries at $3.99.



Maybe to really learn this what you need to do is take $5 to a grocery store and try to figure out what you would most like to buy. You might end up buying a small amount expensive chocolate, or a large amount of cheap spaghetti and a can of sauce. Or you might decide that the store is too expensive to buy anything you really like and what you need to do is take a bus to the Wal-mart grocer. Or you might decide all the grocery stores are too far to go to in winter and you would rather just buy a carton of milk at the gas station on the street corner.

Answer 4

>But if demand goes down, wouldn't price and supply go down as well?



Yes. Relearn about equilibrium price/demand. Remember price y axis, quantity x axis. Demand is negative slope, supply is positive slope.



Demand slope is moved down/left, so equilibrium price moves down, and quantity decreases.

Answer 5

If a market is flooded, oversupplied, then price will fall. Demand will drop because the goods are simple to get. If a market is sparse, undersupplied, prices will go up and demand will go up because the goods are harder to obtain. New electronics is always a prime example, when it is new and difficult to obtain, low supply, prices are high. As the market becomes flooded with supply, prices will fall along with demand, because the items are easy to obtain. Hope this helps.

Answer 6

The four basic laws of supply and demand are [1]

If demand increases and supply remains unchanged then higher equilibrium price and quantity.

If demand decreases and supply remains unchanged then lower equilibrium price and quantity.

If supply increases and demand remains unchanged then lower equilibrium price and higher quantity.

If supply decreases and demand remains unchanged then higher price and lower quantity.



Wikipedia