Supply and demand

To understand all those fancy lines on the chart that, when drawn, the price reacts to them, you must first understand the laws of supply and demand.

The law of demand

There is an inverse relationship between the price and the quantity demanded.

For example, if a company sells a 4K TV at half the usual market price, all other specs being the same, the demand for it will grow. When the price increases, the demand for it will fall.

There are three reasons for the law of demand:

1. The substitution effect:

   When the price of a 4K TV grows too much, an 8K one becomes affordable and vice versa.

2. The income effect:

   When the price rises, fewer people can afford the item; when it falls, more people can afford the item.

3. Law of diminishing marginal utility:

   You don’t necessarily need a second 4K TV, but if the price falls low enough, you could buy another one for the other room.

There are five shifters of demand:

1. Preferences:

   There are...