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that they are demanding. This is the optimal economic condition, where both consumers
and producers of goods and services are satisfied.
The Law Of Demand
Very simply, the law of demand states that if all other factors remain constant, if a good's price is higher,
fewer people will demand it. As the price of that good goes down, the quantity of that good that the market
will demand will increase. In the diagram below, you see this relationship. At price P1, the quanity of that
good demanded is Q1. If the price of this good were to be decreased to P2, the quantity of that good demanded
would increase to Q2. The same is true for P3 and Q3. When prices move up or down (assuming all else is
constant), the quantity demanded will move up or down the demand curve and define the new quantity
demanded.
The Law Of Supply
After understanding the law of demand, the law of supply is simple, it's effectively the inverse of the law of
demand. The law of supply states that as the price rises for a given product/service, suppliers are willing to
supply more. Selling more goods/services at a higher price means more revenue. In the diagram below, you
can see that as the price shifts from P1 to P2, the quantity supplied of that good shifts from Q1 to Q2. The
movement in price (up or down) causes movement along the supply curve and the quantity demanded will
change accordingly.