What is the law of supply and demand?
The relationship between the quantity of a good that producers are willing to sell at different prices and the quantity that consumers are willing to buy at those prices is known as supply and demand. It is the primary model used in economic theory to determine prices. The price of a good is defined by the relations of supply and demand in the market. The equilibrium price is the price at which the quantity provided by producers equals the quantity demanded by consumers.
Key Points
-
Supply is the amount of a good that producers are willing to sell at different prices.
-
Demand is the amount of a good that consumers are willing to buy at different prices.
-
The price of a good is determined by the interaction of supply and demand.
-
The equilibrium price is the price at which the quantity supplied equals the quantity demanded.
Demand & Supply Curves
A demand curve illustrates how much of a product people will purchase at different prices. When prices rise, the amount consumers buy goes down because we all have limited resources. As goods become more expensive, people tend to purchase fewer of them. Additionally, sometimes people opt to buy more of other items that are relatively cheaper.
Similarly, a supply curve shows how much of a product producers will make at different prices. When prices drop, the quantity they're willing to produce decreases as well. Equilibrium is when the demand and supply curves meet, indicating the one price where people want to buy and producers want to sell