Demand and Supply.

Demand and Supply. In Political Economy demand has reference to the quantity of goods asked for in the market, and supply has reference to the quantity of goods offered. The laws of demand and supply may be thus stated: when the demand exceeds the supply, competition grows stronger among the buyers, and prices rise, and when the demand falls short of the supply, competition grows stronger among the sellers, and prices fall; or thus, falling prices tend to lessen the supply and increase the demand, while rising prices tend to increase the supply and lessen the demand. A rise in prices tends to encourage production, while a fall in prices tends to discourage it. Conversely, consumption is promoted by falling and lessened by rising prices. The result is that demand and supply continually tend to equilibrium. Under such a system it is assumed that buyers and sellers or producers and consumers are free to fix their own prices. In other words, the laws of supply and demand prevail under a system of free competition.