Understanding supply and demand
Friday, August 7, 2026
Reference: FCC
Supply and demand are often cited as the reason for prices going up or down. And understanding supply and demand fluctuations can help you better interpret the dynamics of price determination.The law of supply states that the quantity of a good supplied rises as the market price rises. In other words, businesses will want to sell more if the price is higher. The opposite is also true - businesses will look to cut back their sales if the price they get is lower.
The law of demand says the quantity of a good demanded falls as the price rises. Buyers will cut back their purchases if they face a higher price and vice versa.
Supply and demand shifts matter a great deal for markets. Suppose that the production of lentils goes up because of excellent growing conditions. If all other factors remain the same, the supply increase will lead to lower prices. Prices will adjust downward to lead buyers to purchase more lentils, given the ample supply in the marketplace.
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