Demand and Supply

Supply and demand describes the relations between the production and purchase of goods and services.

The supply and demand model is one of the most central concepts in economics. According to this model,if competition is relatively free, then demand and supply will together move toward a point of equilibrium, at which producers and consumers determine the fair market price of a commodity; at this point of equilibrium, producers will supply as much as consumers demand of a good, and they will offer it at the price at which consumers are willing to purchase that quantity of goods.

The point of equilibrium will be maintained until some external force changes either supply or demand (for example, a product is suddenly found to cause cancer, so demand falls; or a scarcity in a natural resource needed to manufacture the product drives cost up, lowering supply).