Supply and demand relationship

Supply and demand relationship

Here is an example how supply and demand affect the market price.

In this case, we will take a special edition T-shirt from Hush Puppy brand as example. The T-shirt is released for $25.Due to the company previous analysis showed that consumer is not willing to buy the T-shirt at the price higher than $25,so there is only ten T-shirt release since the opportunity cost is higher for producer to making more product. However, the ten T-shirt demanded by 20 people, the price of T-shirt will now rise due to the relationship between supply and demand. Whenever quantity of demand increase so does the price. There should be more T-shirt to be supplied as the relationship between supply and demand clearly show that higher the price, higher the quantity supplied.

However, if there are 30 T-shirt produced and demand remains constant at 20.The price of T-shirt will not raise. The 20 consumer have been satisfied with their previous purchase at the current price and yet the price of the leftover T-shirt will drop if the producers want to sell the remaining ten T-shirt. This reaction will now make the availability of consumer to purchase increase because consumers think the previous price was too high and is now affordable with a lower price.

Source: http://www.investopedia.com/university/economics/economics3.asp