Basic Concepts
In a nutshell: Supply and demand set prices and quantities in markets through their interaction.
## The Forces That Shape Markets
Supply and demand are the backbone of market economies. They determine prices and quantities of goods and services.
### Demand: What Buyers Want
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: What Sellers Offer
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 Market Equilibrium
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.
### Shifts in Supply or Demand
Changes in factors like income, tastes, or production costs can shift supply or demand, changing the market price and quantity.
### Why It Matters
Understanding supply and demand helps explain why products go on sale, why prices change, and how markets work around us every day.
Examples
- 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.
Key terms
- Demand
- The quantity of a good or service consumers are willing and able to buy at each price.
- Supply
- The quantity of a good or service producers are willing and able to sell at each price.
- Equilibrium
- The price at which quantity demanded equals quantity supplied.