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The price of oil goes up
The concept of supply and demand is used to explain how the supply of goods and services available and consumer demand for those products influence price. When supply falls, the price of the good rises. When the supply of a good increases, the price falls.
Supply and demand :
The law of supply and demand combines two fundamental economic principles that describe how price changes affect the supply and demand for a resource, commodity, or product. As prices rise, supply rises while demand falls. In contrast, as prices fall, supply tightens while demand expands.
- According to the law of demand, demand for a product or resource decreases as its price rises and increases as the price falls.
- Price changes for a product are related to the quantity supplied by the law of supply. Unlike the law of demand, the law of supply relationship is direct rather than inverse. The greater the price, the greater the supply. All else being equal, lower prices imply lower supply.
- Conversely, the law of supply states that higher prices increase the supply of an economic good while lower prices decrease it.
- A market-clearing price balances supply and demand and is represented graphically by the intersection of the supply and demand curves.
- The price elasticity of a product is the degree to which price changes translate into changes in demand and supply. Basic necessities have relatively inelastic demand, which means they are less responsive to price changes.
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The price of oil goes up due to increase in demand with supply remaining the same.
How are demand and supply related ?
The most important and comprehensive notion, or you would say the foundation of the market or the economic universe, is demand and supply.
- Demand is the quantity of specific goods and services that consumers in the market are willing to purchase.
- Supply is the quantity of certain goods and services that the producers deliver to the marketplace.
Three aspects can be used to explain the relationship between demand and supply :
Excessive Supply or when Supply Exceeds Demand
When an item or service's price is set higher than the equilibrium price, it causes a supply boom from the producers but a less-than-efficient demand response. This is a state of disequilibrium.
Excessive Demand or when Supply Is Limited
This is a similar case of disequilibrium when the prices of goods and services are set below the equilibrium price, causing a surge in customer demand but inefficient supply.
State of Equilibrium
When consumer demand for goods and services is equal to producer supply of goods and services, this is the equilibrium state. Because the producer provides his goods at the same price that the customer is demanding, the economy is currently in a pleased state.
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