the Law of supply-demand refers to the inevitability of mutual restriction between supply-demand relationship and price change of commodities, which is the law of commodity economy, and there is a certain proportional relationship between supply and demand of commodities.

Its basis is that the social labor for producing a certain commodity must meet the social demand for this commodity. The relationship between supply and demand is the unity of opposites between supply and demand. The law of supply and demand is the basic law of the change of supply and demand.

Extended data

The law of supply and demand has two meanings: first, supply and demand determine prices; Second, the price regulates supply and demand. For example, a textile mill expands its production in pursuit of profit, and if all textile mills expand their production, once the supply of products exceeds demand, the price will fall. Enterprises will reduce production; If enterprises reduce production, products will be in short supply and prices will rise, so enterprises will increase production.

People regard "fallacy of composition" as a market failure, on the grounds that excess products will waste resources. This view is actually a misunderstanding. Yes, the long-term unsalable products are a waste of resources, but it has nothing to do with "fallacy of composition".

according to economic theory, if the price is determined by market supply and demand, the price of products will fall if the supply exceeds the demand. As long as the price is low enough, the market will finally clear up. From this, it can be inferred that if a long-term backlog of products of an enterprise causes a waste of resources, then it must not be priced according to the law of supply and demand.

Baidu Encyclopedia-Law of Supply and Demand