The interaction of supply and consumer demand is significant to consumers because the interplay of these two forces typically sets the price of a good or service. As one economist notes, "The resultant market price is dependent upon both of these fundamental components of a market" (How, 2008, p. 1). When buyers and sellers agree on a price, what is known as the "equilibrium price," and exchange of goods or services occurs (How, 2008). For consumers and sellers, the law of supply and demand is a rule of thumb that holds true in the market. As one financial analyst defines the law of supply and demand, "Other things being equal, price and the quantity demanded are inversely related" (Supply, 2008, p. 1). This means the greater the demand for a product or service the higher the price and the lower the demand for a product or service the lower the price. "Other things being equal" refers to factors that can affect demand, such as the availability of substitute goods or changes in consumer tastes. This analysis will provide a discussion of how supply and demand affect consumers, especially with respect to price, availability of goods or services, and substitute goods or services. A conclusion will apply the law of supply and demand to a contemporary market issue that has affected consumers.
In the law of supply and demand, the quantity demanded is distinct from demand, which "refers to the entire relationship between price and the quantity demanded" (Supply, 2008, p. 1). There are a number of factors that affect both supply and demand and, as a result, consumers. When demand or supply for a good or service changes, then the equilibrium price for the good or service changes, so changes in demand or supply always have an effect on consumers where price is concerned. A number of factors affect demand. These factors include income, prices of related goods (substitutes and complements), population, and consumer...