Demand and supply are fundamental concepts in economics that describe the relationship between the quantity of a product or service consumers desire to purchase and the quantity available for sale by producers.
Demand refers to the quantity of a good or service that consumers are willing and able to buy at a given price during a specific time period. It depends on factors such as consumer preferences, income levels, population, and the price of the product itself. As the price of a product decreases, the quantity demanded generally increases, while an increase in price leads to a decrease in quantity demanded, assuming other factors remain constant. The relationship between price and quantity demanded is referred to as the demand curve.
Supply, on the other hand, represents the amount of a specific good or service that producers are willing and able to provide to the market at different prices. It is influenced by the cost of production, technological advancements, input prices, and government regulations. As the price of a product increases, the quantity supplied tends to increase, whereas a decrease in price usually leads to a decrease in the quantity supplied. The relationship between price and quantity supplied is illustrated by the supply curve.
The interaction of demand and supply determines the equilibrium price and quantity in a market. When the quantity demanded equals the quantity supplied, the market is said to be in equilibrium. Changes in demand or supply, due to various factors, can lead to shifts in the corresponding curves, resulting in changes in equilibrium price and quantity. This dynamic interplay between demand and supply is the foundation for understanding how markets function and how prices are determined.
