how does the law of supply and demand controls prices?

price adjusts to equate demand and supply.

if demand > supply, price goes up.
if supply > demand, price goes down.

in the classic model, prices always adjust to bring demand and supply to equilibrium.

if you graph it, it will be very clear and straight forward.

demand is a downward-sloping function. (as price increases, quantity demanded decreases)
supply is an upward-sloping function. (as price increases, quantity supplied increases as well)

x-axis is quantity (demanded/supplied)
y-axis is the price

if this is a HW question, you should draw a graph to help explain the concept.
 
The Lower the supply the higher the demand and the higher the price for example Gold

The higher the supply the lower the demand and the lower the price for example Sand.

If suddenly they found an island the size of New Zealand made of gold the supply would go up and the price would go down, If all the gold mines in the world closed tommorow.. the supply would go down and the price would go up

Supply controls price
 
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