Supply and demand is a fundamental concept in economics that describes the relationship between the quantity of a good or service that producers are willing to sell and the quantity that consumers are willing to buy at different prices . The model of supply and demand is used to explain how prices are determined in a market economy .
The law of demand states that as the price of a good or service increases, the quantity demanded by consumers decreases, and vice versa . This means that there is an inverse relationship between the price of a good and the quantity demanded . The demand curve is a graphical representation of this relationship, with price on the vertical axis and quantity on the horizontal axis . The demand curve slopes downward from left to right, indicating that as the price of a good decreases, the quantity demanded increases .
The law of supply states that as the price of a good or service increases, the quantity supplied by producers increases, and vice versa . This means that there is a direct relationship between the price of a good and the quantity supplied . The supply curve is a graphical representation of this relationship, with price on the vertical axis and quantity on the horizontal axis . The supply curve slopes upward from left to right, indicating that as the price of a good increases, the quantity supplied increases .
The intersection of the supply and demand curves determines the equilibrium price and quantity of a good or service in a market . At the equilibrium price, the quantity of a good supplied by producers equals the quantity demanded by consumers . If the price is above the equilibrium price, there is a surplus of the good, and producers will decrease the price to sell more of the good . If the price is below the equilibrium price, there is a shortage of the good, and consumers will bid up the price to buy more of the good .
The supply and demand model can be used to analyze various economic phenomena, such as price controls, taxes, and subsidies . For example, if the government