Supply And Demand
The law of supply and demand describes how prices will vary based on the balance between the supply of a product and the demand for that product (Wikipedia, 2005). If there is a balance between the supply, (the availability of the product), and the demand, (how much product the consumers want), then the price for the product would be considered good. If there is an imbalance, the price will change. According to Adam Smith, the invisible hand is a self-adjusting force in the market that corrects the price of a product through supply and demand (Colander, 2006).
When a product is in short supply and there is significant demand for the product, the price will increase (Colander, 2006). When the quantity of the product is greater than the demand, the price will decrease (Colander, 2006).
This assumes there exist a competitive marketplace. This process of price variability based on the supply of a good and the demand for it will continue until a balance is once again reached......
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