Explain supply and demand: describe the main components of each concept. (Ex: law, definition). Then describe the processes that create prices in a market economy. How do these two forces help to create prices and keep them stable in a market economy?

Supply: The total amount of a good or service available for purchase; along with demand, one of the two key determinants of price. A change in the price of the product will cause a change in quantity supplied.

Demand: The willingness and ability of the people within a market area to purchase particular amounts of goods or services at a variety of alternative prices during a specified time period.

The Law of Supply and Demand: The price of an item will go down if the supply increases or if the demand for the item decreases. The price of an item will go up if the supply decreases or if the demand for the item increases. In general, the price of an item is usually pushed toward the level at which the quantity supplied will equal the quantity demanded.

Layman’s Terms: The law of supply and demand is not an actual law but is well confirmed and understood realization that if you have a lot of one item, the price for that item would go down. At the same time you need to understand the interaction; even if you have a high supply, if the demand is also high, the price could also be high. In the world of stock investing, the law of supply and demand can contribute to explaining a stock's price at any given time. It