Laws of Demand And Supply - SS2 Economics Lesson Note

The law of demand and the law of supply are two fundamental concepts in economics that explain how prices and quantities of goods and services are determined in the market.

The law of demand states that as the price of a good or service increases, the quantity demanded of that good or service decreases, ceteris paribus (assuming all other factors remain constant). Similarly, as the price of a good or service decreases, the quantity demanded of that good or service increases, ceteris paribus. The law of demand is based on the assumption that as the price of a good or service increases, consumers will substitute it for a cheaper alternative or reduce their consumption, and vice versa.

The law of supply, on the other hand, states that as the price of a good or service increases, the quantity supplied of that good or service increases, ceteris paribus. Similarly, as the price of a good or service decreases, the quantity supplied of that good or service decreases, ceteris paribus. The law of supply is based on the assumption that as the price of a good or service increases, producers will be willing to supply more of it to the market to earn more profits, and vice versa.