The law of __________ describes the relationship between prices and demand.
The law of **supply and demand** describes the relationship between prices and demand. Prices and demand are inversely related - as prices increase, demand decreases, and as prices decrease, demand increases.
To understand the law of supply and demand and its relationship with prices and demand, you can follow these steps:
1. **Define the law of supply and demand:** The law of supply and demand is a fundamental concept in economics. It states that in a competitive market, the quantity of a good or service that consumers are willing and able to buy (demand) is inversely related to its price, while the quantity that producers are willing and able to sell (supply) is directly related to its price.
2. **Identify the factors influencing demand:** Several factors influence demand, including price, income, tastes/preferences, population, consumer expectations, and the prices of related goods (substitutes and complements). Price is the primary determinant, as it directly affects demand.
3. **Understand the demand curve:** Demand is illustrated using a demand curve, which shows the quantity of a good or service that consumers are willing and able to purchase at various prices, assuming other factors remain constant. The demand curve slopes downwards to represent the inverse relationship between price and demand.
4. **Analyze the relationship between prices and demand:** As prices increase, the quantity demanded decreases, and vice versa. This is because consumers tend to buy less of a good or service as its price rises, while they are more willing to buy when the price is lower.
So, in summary, the law of supply and demand describes the inverse relationship between prices and demand. As prices increase, demand decreases, and as prices decrease, demand increases. Understanding this concept involves comprehending the factors influencing demand, analyzing the demand curve, and recognizing how price changes affect consumer behavior.