Supply and Demand

In this article the basic fundamental concepts of economic demand and supply model are discussed. The laws of demand and supply are defined and discussed in relation to one another. The theory of demand and supply determines the price of a particular good or service at a particular time. This article unfolds these concepts and explains the cause and effects different variables have in the demand and supply curve and schedule.

Demand, as defined in this article, has three components; something you want, can afford, and plan to purchase. The law of demand states higher the price of a good, the smaller is the quantity demanded and vice versa. The demand curve is typically a downward slope that illustrates the quantity demand of a good and the maximum price consumers are willing and able to pay for it. Influences such as substitute goods, complimentary goods, income, and population may change the demand schedule either increasing or decreasing it. The theory or supply and demand explains how the price and quantity of goods sold in a market is determined.

The law of supply states that the higher the price of a good, the greater is the quantity supplied and vice versa. The supply curve typically curves upward from left to right. Supply also means willingness to sell, and the supplier must be willing to sell the item or service at a price that the customers will demand it. When the price of the good changes there is movement along the supply curve which is called a change in quantity supplied. When other influences change and there is a shift in the supply schedule this is known as an increase or decrease in supply.

Demand is the relationship between the price of the item and the quantity that consumers are willing to buy. Supply is the relation between the price and the amount that producers are willing to sell. When these two concepts are applied, we discover the market equilibrium. This is the price and quantity at the intersection of the supply and demand...