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The Laws of Supply and Demand - 4 The law of demand states that all other variables remaining the same the higher the price the less the quantity demanded This can be seen in the diagram to your left Fred the butcher notices that when the price of beef is 6 per kilogram 150 kilograms are bought each week When the price of beef is 8 per kilogram 100 kilograms are bought each week The law of supply states that the higher the price of a good or service all other variables remaining the same the greater the quantity is supplied In the diagram we can see this effect When the price of beef is 6 per kilogram Fred the butcher will supply 50 kilograms per week When the price of beef rises to 8 per kilogram Fred will supply 100 kilograms per week The Laws of Supply and Demand - 5 In a market economy the prices of goods and services are influenced by the interaction of the market forces of supply and demand If there are only a limited stock of some product available competition between potential buyers tends to see prices rise a consumers bid up prices Can you see this effect in the diagram to your right Similarly competition between sellers of the product tends to see prices fall as they try to attract buyers Markets generally reach an equilibrium price and quantity where suppliers and consumers reach a compromise Setting prices too high can lead to low sales and the potential for making a loss Demanding low prices may lead to no purcha
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