Law of Supply and Demand

The Law of Supply and Demand describes how market prices and traded quantities evolve through the interaction of buyers and sellers. Prices shift in response to changes in either side of the market. If consumers want more of a product than producers are offering, the shortage puts upward pressure on prices, motivating producers to expand output and causing consumers to reduce their purchases. Conversely, when producers supply more than consumers are willing to buy, prices tend to fall, which encourages greater consumer demand and leads producers to scale back. Through these adjustments, markets generally move toward an equilibrium point where the amount buyers wish to purchase matches the amount sellers are willing to provide.

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For example, if coffee prices increase, some consumers may reduce their consumption due to the higher cost, while coffee growers or sellers may be inclined to supply more because the product becomes more profitable.