Supply & Demand: How Market Works

The two basic terms used most often by economists are supply and demand. The amount of something that is available the supply and the amount of something that people want the demand-make up a working market. The market is the way in which an economic activity is organized between buyers and sellers through their behaviour and interaction with one another.

Buyers as a group, determine the overall demand for a particular product at various prices. The interaction of buyers and sellers in the market helps to determine the market price, thereby allocating scarce goods and services efficiently. The price is taken into account when deciding how much of something to consume, and also how much to produce.

The relationship between price and quantity demanded is so universal that is called the law of demand. This law states that with all else equal, when the price of goods rises, the quantity demanded falls-and when the price falls, the quantity demanded rises. The supply curve provides the opposite information: the higher the price, the higher the quantity supplied and the lower the price, the lower the quantity supplied.

A key function of the market is to find the equilibrium price when supply and demand are in balance. At this price, the goods supplied are equal to what is being demanded thereby bringing about the most efficient allocation of the goods. An efficient allocation of goods in a market is one in which no one can be made better off unless someone else is made worse off.


According to law of demand, the quantity of consumption and production of goods is determined by….

  1. the price

  2. the demand

  3. the supply

  4. the market

  5. the economy

Y. Yuli.Widya

Master Teacher

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Berdasarkan kalimat “This law states that with all else equal, when the price of a good rises, the quantity demanded falls – and when the price falls, the quantity demanded rises” yang terdapat pada kalimat ke-2 di paragraf ke-3, dapat diketahui bahwa hukum permintaan menyatakan bahwa apabila harga naik, jumlah permintaan menurun dan sebaliknya sehingga pilihan jawaban (A) adalah yang paling tepat karena jumlah konsumsi dan produksi barang yang merupakan bagian dari permintaan (demand) ditentukan oleh harga.


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