Economics & market laws · law 019
Law of Supply and Demand
By Shivam Bhandari · Reviewed 31 October 2026 · How we write
what it means
Prices rise when demand exceeds supply and fall when supply exceeds demand, settling where the two meet.
How Law of Supply and Demand works
Demand falls as price rises (fewer people will pay more), while supply rises as price rises (more sellers want in). The market price is where buyers' willingness to pay meets sellers' willingness to sell.
For a business owner, the useful question is which side you can influence: you can shift demand up with branding and differentiation, or shift your own supply with capacity and cost decisions.
where it comes from
The idea runs through Adam Smith's The Wealth of Nations (1776); economist Alfred Marshall drew the familiar crossing supply and demand curves in his Principles of Economics (1890).
Law of Supply and Demand examples in business
Seasonal pricing
Hotel rooms in hill stations cost far more in peak summer than in monsoon because demand swings while room supply stays fixed.
Commodity inputs
When onion prices spike after a poor harvest, restaurants either raise prices, shrink portions, or switch ingredients.
Scarce skills
Salaries for experienced developers rise when many companies chase a small pool of talent.
How to apply it
- 1Track when demand for your product peaks and dips through the year.
- 2Price higher when demand outruns your capacity, and use offers to fill slow periods.
- 3Watch input supply risks and lock in prices or alternatives early.
- 4Differentiate so your demand is less sensitive to competitors' prices.
common misreading
Real markets are messier than the textbook graph — brand loyalty, regulation, and information gaps all bend the curves.
ask yourself
When is demand for your product higher than your capacity, and are you pricing for it?
put it into practice
Frequently asked questions
What is Law of Supply and Demand?
Prices rise when demand exceeds supply and fall when supply exceeds demand, settling where the two meet. Demand falls as price rises (fewer people will pay more), while supply rises as price rises (more sellers want in). The market price is where buyers' willingness to pay meets sellers' willingness to sell.
Who came up with Law of Supply and Demand?
The idea runs through Adam Smith's The Wealth of Nations (1776); economist Alfred Marshall drew the familiar crossing supply and demand curves in his Principles of Economics (1890).
How do you apply Law of Supply and Demand in business?
1. Track when demand for your product peaks and dips through the year. 2. Price higher when demand outruns your capacity, and use offers to fill slow periods. 3. Watch input supply risks and lock in prices or alternatives early. 4. Differentiate so your demand is less sensitive to competitors' prices.
What is a common misunderstanding of Law of Supply and Demand?
Real markets are messier than the textbook graph — brand loyalty, regulation, and information gaps all bend the curves.