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đź“ŚWhat Is the Law of Supply and Demandâť“âť—
đź“ŠBefore we get into specific answers, it is important to understand how markets work and why prices move. Price movement in any free market is a function of an ongoing supply and demand relationship within that market. Opportunity exists when this simple and straight forward relationship is out of balance. Put quite simply, a market is made up of three components: buyers, sellers, and a
widget being bought or sold. These widgets may be shares of a stock, S&P futures, foreign currencies, bonds, and many more tangible and intangible "widgets"
âś…The law of supply and demand is a theory stand in all markets ,that explains the interaction between the sellers of a resource and the buyers for that resource. The theory defines the relationship between the price of a given good or asset and the willingness of people to either buy or sell it. Generally, as price increases, people are willing to supply more and demand less and vice versa when the price falls.
⚪KEY TAKEAWAYS
So That value or "price" as we call it is determined simply by the supply and demand for an asset like stock, which is the ongoing interaction of all the buyers and sellers taking action with regard to that particular stock.
A market is always in one of three states:
đź”´1. It can be in a state where demand exceeds supply which means there is competition to buy and that leads to higher prices.
🔵2. It can be in a state where supply exceeds demand which means there is competition to sell and this leads to declining prices.
âš«3. It can be in a state of equilibrium. At equilibrium, there is no competition to buy or sell because the market is at a price where everyone can buy or sell as much as they want. However, as the market moves away from equilibrium, competition increases which forces price back to equilibrium. In other words, competition eliminates itself by forcing market prices back to equilibrium. At equilibrium, there is little to no trading opportunity.
🔸🔹🔶🔷
The equilibrium price and equilibrium quantity occur where the supply and demand curves cross.
The equilibrium occurs where the quantity demanded is equal to the quantity supplied. If the price is below the equilibrium level, then the quantity demanded will exceed the quantity supplied.
widget being bought or sold. These widgets may be shares of a stock, S&P futures, foreign currencies, bonds, and many more tangible and intangible "widgets"
âś…The law of supply and demand is a theory stand in all markets ,that explains the interaction between the sellers of a resource and the buyers for that resource. The theory defines the relationship between the price of a given good or asset and the willingness of people to either buy or sell it. Generally, as price increases, people are willing to supply more and demand less and vice versa when the price falls.
⚪KEY TAKEAWAYS
So That value or "price" as we call it is determined simply by the supply and demand for an asset like stock, which is the ongoing interaction of all the buyers and sellers taking action with regard to that particular stock.
A market is always in one of three states:
đź”´1. It can be in a state where demand exceeds supply which means there is competition to buy and that leads to higher prices.
🔵2. It can be in a state where supply exceeds demand which means there is competition to sell and this leads to declining prices.
âš«3. It can be in a state of equilibrium. At equilibrium, there is no competition to buy or sell because the market is at a price where everyone can buy or sell as much as they want. However, as the market moves away from equilibrium, competition increases which forces price back to equilibrium. In other words, competition eliminates itself by forcing market prices back to equilibrium. At equilibrium, there is little to no trading opportunity.
🔸🔹🔶🔷
The equilibrium price and equilibrium quantity occur where the supply and demand curves cross.
The equilibrium occurs where the quantity demanded is equal to the quantity supplied. If the price is below the equilibrium level, then the quantity demanded will exceed the quantity supplied.
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