The laws of demand

One of the biggest driving factors to prices on earth is the Laws of Demand. A law very commonly used by economists and entrepreneurs, as well as investors. The law of demand is simple yet effective, easy to understand yet plays a big roll in our society.

The law of demand has two definitions in my opinion.

The first one states: the higher the demand, the lower the price, the higher the price, the lower the demand.

The second one states: The higher the price, the less people will buy it(Lower demand), the lower the price, the more people will buy it(Higher demand).

If you look carefully at these definitions they are basically saying the exact same thing. My reasoning behind having two definitions is that the first is universal and represents a common good(food, electricity, etc), thus the higher the demand the less the probability of it being expensive and unaffordable. The second one takes into account things such as luxury goods(Rolex, lamborgini, ferrari, etc), thus although these items are expensive that doesn't mean there is less want by the people for it, but rather it is less affordable.

The law of demand has a big roll to play when it comes to investing.  Many of you might have seen shows such as Shark Tank or Dragons Den. These are investing shows in which business owners/creators pitch their products to investors("Sharks" or "Dragons" in the case of these shows) for a certain percentage of their businesses. The investors either reject or accept their offers based on a few criteria, one of the biggest core criterias are demand, how much do consumers want said product. How much consumers are willing to pay for that product.

The investros will either look at the product and see a demand for it, or they will ask a few questions in order to see how profitable the product is. This is indicated by revenue and profitability, the higher the revenue the bigger the profit(although this is not always the case). As all investors want to make money when investing.

Here is where my advice comes in, with regards to picking investments, the higher the profitability of a company the better the investment, because if the company is very profitable it indicates that their products are in high demand thus they most likely have a good future. These companies tend to have a higher revenue as compared to other companies and a good profit margin.

If a company is new, and you can see they fill a gap in the market by a product that will potentially be in high demand this also indicates a possible good investment.

Read more bout the law of demand here.

What Is the Law of Demand?

The law of demand states that quantity purchased varies inversely with price. In other words, the higher the price, the lower the quantity demanded.

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