Also known as: supply and demand law · laws of supply and demand · supply and demand
Written by attorneys · grounded in primary & secondary sources — see below
An economic principle by which the price of a good or service is determined through the interaction of the quantity supplied and the quantity consumers are willing to purchase. The market clears at the price where the amount offered equals the amount demanded at the margin.
Lars Lindstrom grows extra wheat on his landlocked farm solely to feed his family and livestock. He joins other farmers who collectively forgo purchases from the national grain market. Their combined decisions reduce overall demand and depress interstate commodity prices. The federal production limit therefore reaches Lars because the aggregate activity substantially affects national supply and demand.
Legacy Motors needs steel for vehicle production. When worldwide output falls to only one thousand pounds per year, buyers compete aggressively and bid prices sharply higher. The highest bidder obtains the steel. Price therefore rises until the limited supply matches the quantity demanded at the new equilibrium.
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Price is set at the level where the quantity of a product available equals the amount consumers are willing to buy at the margin. When supply is scarce relative to demand, buyers bid higher and price rises. When supply exceeds demand, sellers lower prices to clear excess inventory.
Home production substitutes for purchases that would otherwise occur in the national market. When many individuals make the same choice, aggregate demand falls and prices in the interstate market decline. Courts therefore treat the cumulative effect as a substantial economic impact on commerce.
No. The principle governs any production or allocation of a fungible good that displaces market purchases, even when the activity is noncommercial or donation-based. Courts aggregate such conduct because widespread self-supply alters national demand and price signals in the same way commercial output does.