Economists call this the Law of Demand. If the price goes up, the quantity demanded goes down (but demand itself stays the same). If the price decreases, quantity demanded increases. This is the Law of Demand.
What happens when the cost of producing a good decreases?
The supplier will supply less at each quantity level. If production costs declined, the opposite would be true. Lower costs would result in an increase in output, shifting the supply curve outward (to the right) and the supplier will be willing sell a larger quantity at each price level.
What happens to the supply curve for bread if there is an increase in the price of bread?
We will approach a new equilibrium with a higher price and a larger quantity of bread traded. We have a decrease in quantity demanded as the price is bid up. Over here on the supply curve, the rising price leads new suppliers to enter the market, or existing suppliers to increase the quantity they supply.
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What happens when the price of a good increases?
When the price of the good rises, the opposite occurs; that is, as the price of the good becomes relatively more expensive compared to other goods a lower quantity will be demanded. For example, as the price of apples increases or decreases, apples become relatively more or less expensive compared to other goods, such as oranges.
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How are prices and rates affected by supply and demand?
Prices and rates change as supply or demand changes. If something is in demand and supply begins to shrink, prices will rise. If supply increases beyond current demand, prices will fall. If supply is relatively stable, prices can fluctuate higher and lower as demand increases or decreases.
What causes prices to go down in the stock market?
If a large group of sellers were to enter the market, this would increase the supply of stock available and would likely push prices lower. This occurs on all time frames. As stated above, trends are generally created by four major factors: government, international transactions, speculation/expectation and supply and demand.
How does the government affect the market trends?
Government effects trends mainly through monetary and fiscal policy. These policies effect international transactions which in turn effect economic strength. Speculation and expectation drive prices based on what future prices might be. Finally, changes in supply and demand create trends as market participants fight for the best price.
