h2g2 The Hitchhiker's Guide to the Galaxy: Earth Edition

> "If the supply cannot meet the demand for an item, the price will go up until manufacturers can make enough of the item to meet the demand."

OR until the demand for the item is stifled by the extortionate price. For example, in a famine the demand for food is very high, so the price of food goes up until the poor can't afford to eat.

> "If the supply is too great for the demand for an item, the price will go down until the manufacturers can get rid of their inventory and the supply equals the demand."

OR until the manufacturers go out of business and everyone loses hir job. For example, when the demand for UK coal dropped away sharply, the price went down and down and down until it was uneconomic to produce coal in this country and everyone lost hir job and joined the dole queues.

> "One thing to remember, as soon as you find a way to make a profit on an item (when your costs of production are less than the revenues you receive for the item on the marketplace), someone will try to make that item cheaper and steal your market share."

Unless you have barriers to entry. These include patents, copyright, R&D advantages, marketing advantages, product differentiation, exploiting monopoly power, exploiting breadth of supply, and exploiting commercial power.

-Martin

That's why I said:

'None of these rules can be applied in the absence of an operating free enterprise system.'

'Pure' economics doesn't exist in the 'Real World'

The comments I made about mismatched demand or supply definately apply to 'pure' free enterprise systems. If demand is greater than supply, price goes up, which increases supply AND decreases demand. The decrease in demand is just as big a part of the 'laws' of supply and demand as the increase in supply.

Even in the most libertarian of free enterprise systems, you'll have barriers to entry. Heck, they're a fundamental part of economics: without barriers to entry you have no incentive for companies to invest in R&D.