Advanced Placement Microeconomics analyzing individual economic decision-making.
Supply and demand are the backbone of market economies. They determine prices and quantities of goods and services.
Demand is how much of a good or service people are willing and able to buy at different prices. When prices go up, people usually buy less. When prices go down, people buy more.
Supply is how much of a good or service sellers are willing and able to produce at different prices. Higher prices often mean producers want to make and sell more.
The magic happens where supply meets demand—the equilibrium price. At this price, the amount buyers want to buy equals the amount sellers want to sell.
Changes in factors like income, tastes, or production costs can shift supply or demand, changing the market price and quantity.
Understanding supply and demand helps explain why products go on sale, why prices change, and how markets work around us every day.
When a popular sneaker drops and everyone wants it, demand increases and so does the price.
A bumper crop of strawberries increases supply, leading to lower prices at the store.
Supply and demand set prices and quantities in markets through their interaction.