Demand
Demand is the quantity of a good or service that consumers are willing and able to buy at various prices over a period of time.
Law of Demand
Other things being equal, as price rises, quantity demanded falls; as price falls, quantity demanded rises.
This creates a downward-sloping demand curve.
Factors Affecting Demand
- Price of the good (movement along curve)
- Income of consumers
- Price of related goods (substitutes and complements)
- Tastes and preferences
- Population size
- Expectations about future prices
Supply
Supply is the quantity of a good or service that producers are willing and able to offer for sale at various prices.
Law of Supply
Other things being equal, as price rises, quantity supplied rises; as price falls, quantity supplied falls.
This creates an upward-sloping supply curve.
Market Equilibrium
Equilibrium occurs where the demand curve meets the supply curve — the equilibrium price (also called market-clearing price) and equilibrium quantity.
- At equilibrium: Quantity Demanded = Quantity Supplied
- Above equilibrium price: surplus (excess supply)
- Below equilibrium price: shortage (excess demand)