Law of Demand the Laws of Supply

Law of Demand

The laws of supply and demand dictate how the market functions within an economic society. These laws also affect how commodity pricing is determined and how it may fluctuate depending on the amount of readily available products or services and the intensity of demand for said products and services.

The law of demand stipulates that "other things held constant, as the price of a good increases, the quantity demanded will fall" (Supply and Demand, n.d.). There are several factors that can influence the demand of a commodity including income, the price of related products, consumer tastes and preferences, and expectations. Income helps to determine the quality of a commodity being sold. For example, as an individual's income increases, then it is reasonable to assume that this individual has an increased ability to purchase more goods. If the demand of a good increases proportionately with an income increase, then this is called a "normal good," however, if the demand of a good decreases when an income is increased then the good is referred to as an "inferior good" (Supply and Demand, n.d.). The price of related goods also affect demand. These related goods can be used to as substitutes for the goods or services offered, or they can be complementary products that help to elevate the use of the original good. Tastes and preferences also help to determine demand, however consumers' personal tastes are not likely to change in the short-term; tastes and preferences also help to determine how related goods are purchased in conjunction with the original good. Expectations also help to determine how demand is calculated. For example, if a good's price is expected to rise in the future, then it is likely that a present increase in demand may occur in an attempt to offset future price disparities (Supply and Demand, n.d.).

In order to calculate the demand of a certain commodity, demand curves may be analyzed. Demand curves look to "isolate the relationship between quantity demanded and the price of the product, while hold all other influences constant" (Supply and Demand, n.d.). The curves that are mapped out through these calculations help to demonstrate how many of a certain product is likely to be purchased at different prices. Moreover, the sum of individual demand curves is the market demand.

The Law of Demand is present in every day consumer life. For example, a real-life application of the Law of Demand can be applied to the purchasing of music tickets for the band Radiohead. Due to the band's popularity, it is likely that the arenas in which they are scheduled to play will be sold out. In this case, the arenas help to determine the supply of the tickets that will be available. Furthermore, the limited number of cities also help to determine how high demand for tickets will be. Given the limited number of seats and/or tickets available for each concert, and the limited amount of cities being visited, it would be in one's best interest to purchase a ticket at the retail price. However, if all the tickets to a specific venue have been purchased, yet the demand remains high, the value of the tickets increases. For example, if a ticket was purchased at $60 on the day that said ticket when on sale, the more limited the number of tickets becomes, the higher the value of said ticket. It is likely that nearer the date of the band's performance, the same ticket purchased for $60 could easily be sold at an exponentially increased price. Additional factors such as seating location may also help to influence the value of a ticket as it is likely that tickets for seats that are closer to the band platform are more valuable than seats that are located in the "nosebleed" section of a venue.