Supply and Demand is a fundamental concept in economics that describes how prices and quantities of goods and services are determined in a market.
Demand
- Definition: Demand is the quantity of a product or service that consumers are willing and able to buy at different prices over a certain period.
- Law of Demand: There is an inverse relationship between price and quantity demanded — as price decreases, demand usually increases, and vice versa.
- Demand Curve: A downward-sloping curve that shows the relationship between price and quantity demanded.
Supply
- Definition: Supply is the quantity of a product or service that producers are willing and able to offer for sale at different prices over a certain period.
- Law of Supply: There is a direct relationship between price and quantity supplied — as price increases, supply usually increases, and vice versa.
- Supply Curve: An upward-sloping curve showing the relationship between price and quantity supplied.
Factors Affecting Supply and Demand
Factors Affecting Demand
- Consumer income
- Preferences and tastes
- Prices of related goods (substitutes and complements)
- Expectations about future prices
- Number of buyers
Factors Affecting Supply
- Production costs
- Technology
- Prices of related goods
- Expectations about future prices
- Number of sellers
Importance of Supply and Demand
- Helps explain how prices are set in competitive markets
- Provides insights into how changes in market conditions affect prices and quantities
- Forms the basis for economic policy and business strategy decisions
THE ETERNAL SOVEREIGN 