Supply and demand are fundamental concepts in economics that describe how the quantity of a product or service is determined in a market. Here’s a basic overview:

Demand

This refers to how much of a product or service consumers are willing and able to purchase at various prices. The law of demand states that, all else being equal, as the price of a product decreases, the quantity demanded increases, and vice versa. This relationship typically results in a downward-sloping demand curve.

Supply

This represents how much of a product or service producers are willing and able to sell at various prices. The law of supply states that, all else being equal, as the price of a product increases, the quantity supplied increases, and vice versa. This results in an upward-sloping supply curve.

Equilibrium

The point where the supply and demand curves intersect is called the equilibrium price or market-clearing price. At this price, the quantity supplied equals the quantity demanded. This is where the market is balanced.

Shifts in Curves

Various factors can cause shifts in the supply and demand curves. For example:
– Demand Shifters: Changes in consumer preferences, income, prices of related goods (substitutes or complements), and expectations can shift the demand curve.
– Supply Shifters: Changes in production technology, input prices, number of suppliers, and expectations can shift the supply curve.

Market Disequilibrium

When the market is not at equilibrium, there can be surpluses (when supply exceeds demand) or shortages (when demand exceeds supply). Prices will typically adjust to restore equilibrium.

These dynamics help explain how prices and quantities of goods and services are determined in a market economy.