Answer to Question #176507 in Microeconomics for Bubblys

Question

Say whether the following statement makes Good Economic Sense, is Complete Economic Nonsense, or is Somewhere In Between: “The products for which demand is the greatest will also be the products that are the most profitable to produce.”

Answer 1

The statement makes good economic sense.

The law of demand states that if all other aspects remain constant, demand will decline as a product's price increases. It is up to the business owner to find the sales sweet spot that allows them to make as much money as possible without causing demand to dwindle, if the ultimate target is to be profitable.

Business is all about being profitable by whatever margins. When market demand exceeds supply, prices tend to increase and when demand decreases prices go down as well.

Demand also dictates supply where a greater demand will result in hiked prices so as to satisfy the market and dilute the demand margin, Because number of units demanded, produced and sold will be high leading to increased profitability.