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The economy works on the basis of the demands people have and the availability of resources to be able to meet these demands. The demand supply is a concept which is the foundation of economics.

Demand refers to the demand which people have as far as goods and services are concerned. The demand is the amount of goods which people are willing to purchase. However their ability to purchase a given amount depends on the supply of it. Supply refers to the amount of goods and services which are available in the market which people can buy. The one thing which influences demand and supply is the price of the goods.

When understanding the relationship between demand and supply, one must be aware of the law of demand and the law of supply. It is essential to be aware of these two laws in order to know how demand and supply works in an economy. The law of demand states that if the price of a good or service is high, the demand for it will be low. When the price of a certain product will be high, consumers will purchase another item instead which would be lower in its price. This brings about the factor of opportunity cost. Due to the price of the good being too high, consumers let go of the option and the product which is given up is known as the opportunity cost.

The law of supply however works in the other direction. Since suppliers want the highest possible amount for a product, goods which have a relatively high demand are sold at a high price. If the company is a monopoly in the….

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