Supply and Demand

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The principle that within a competitive market, price for a particular asset will fluctuate until it reaches a value where the amount demanded by consumers is equal to the amount supplied by producers. This is known as an economic equilibrium.

There are four laws of supply and demand:

  1. If demand increases and supply remains unchanged, a shortage occurs, leading to a higher equilibrium price.
  2. If demand decreases and supply remains unchanged, a surplus occurs, leading to a lower equilibrium price.
  3. If demand remains unchanged and supply increases, a surplus occurs, leading to a lower equilibrium price.
  4. If demand remains unchanged and supply decreases, a shortage occurs, leading to a higher equilibrium price.