What is Supply and Demand?

 Supply and Demand.

Supply and demand are fundamental economic concepts that explain how prices are determined in a market.

1. Demand

  • Definition: Demand is the amount of a product or service that consumers are willing and able to buy at different prices.

  • Law of Demand: As the price of a good decreases, the quantity demanded increases, and vice versa (assuming other factors remain the same).

  • Example: If the price of ice cream drops from $5 to $2, more people will want to buy it.

2. Supply

  • Definition: Supply is the amount of a product or service that producers are willing and able to sell at different prices.

  • Law of Supply: As the price of a good increases, the quantity supplied increases, and vice versa.

  • Example: If ice cream can be sold for $5 instead of $2, more businesses will want to produce and sell it.

3. Market Equilibrium

  • This is the point where supply equals demand.

  • The equilibrium price is the price at which the quantity demanded by consumers equals the quantity supplied by producers.

  • At this point, there's no surplus (too much supply) or shortage (too little supply).

Visual Summary

PriceDemandSupplyResult
HighLowHighSurplus
LowHighLowShortage
BalancedBalancedBalancedMarket Equilibrium

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