Laws of Demand

Supply and Demand are the main components of a market and determine how the price of a product is determined.

The demand curve shows the inverse relationship between the price and the quantity bought based on that price. There are 2 main reasons for this inverse relationship:

• Willingness To Pay: As the price of a good rises, its price may exceed its marginal utility in which case the consumer becomes unwilling to pay for the good. Furthermore, the consumer may switch to substitutes instead
• Ability to Pay: As the price rises, the consumer may be unable to produce the real income in order to afford the good which means the quantity demanded will be lower. Examples of this would be luxury cars.

The type of good in relation to to others being sold also has an influence on its demand, goods can be classified into 2 types of good in relationship to other goods:

• Complement goods: A complement good, as said in the name, is complementary with another good which means that as the demand of one good rises, so will the demand of the other. The best example of this would be as the sale of movie tickets rises, so will the popcorn sales.
• Substitute goods: A substitute good is a good which will increase in demand as the demand of another good decreases. An example of that would products in a perfect…