Understanding Supply and Demand

Supply and demand are important ideas in economics. They help us understand how markets work. Market equilibrium is the situation where the amount of a product that customers want to buy (demand) is equal to the amount that producers are willing to sell (supply).

What is Supply?

• Definition: Supply means the amount of a good or service that producers are ready to sell at different prices.
• Law of Supply: When the price of a good goes up, the amount supplied also goes up.
  For example, if the price of wheat goes from £200 to £300 for each tonne, the suppliers might produce more wheat. They could increase their production from 100,000 tonnes to 150,000 tonnes.

What is Demand?

• Definition: Demand is the amount of a good or service that customers want to buy at different prices.
• Law of Demand: When the price of a good goes down, the amount demanded goes up.
  For example, if the price of electric cars drops from £30,000 to £25,000, more people might want to buy them. Demand could increase from 20,000 cars to 30,000 cars.

What is Market Equilibrium?

• Equilibrium Price and Quantity: The market is in equilibrium when the amount of a product that people want to buy equals the amount that producers want to sell.
  You can see this where the demand curve and the supply curve meet.
• Example: If the price for a cup of coffee is £3, and at that price, customers want 150,000 cups while producers are also supplying 150,000 cups, then the market is balanced.

Changes in Supply and Demand

• If either supply or demand changes (because of things like what customers prefer or costs of production), it can affect the equilibrium price and quantity.
  For example, if people's incomes go up, they might want to buy more, which can shift the demand curve to the right. This would lead to a higher price in the market.

Economists study these changes to help predict how market conditions will change and their effects on prices and quantities.