Supply And Demand Flashcards, test questions and answers

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What is Supply And Demand?

Supply and demand is an economic concept that describes the interaction of buyers and sellers in a market. It is one of the most fundamental concepts in economics, as it describes how prices are determined in a free market economy. The concept can be applied to any type of goods or services, from commodities such as wheat and oil to currencies like the U.S. dollar, stocks, bonds, and even labor. The basic premise behind supply and demand is that equilibrium prices are achieved when the quantity supplied (supply) equals the quantity demanded (demand). In other words, when there are more buyers than sellers, prices go up; conversely, when there are more sellers than buyers, prices tend to go down. This is because suppliers have an incentive to increase their production if they know they will get higher prices for their goods or services; likewise, consumers have an incentive to buy if they know they will get a better deal on something they want or need. Supply and demand also affects pricing by influencing how much competition there is for certain products or services; for example, if two companies make similar products with similar features at different price points then consumers may choose the product with the lower price point because it’s seen as offering better value for money. Supply and demand can also be affected by external factors such as government policies or natural disasters that disrupt supply chains or alter consumer behavior. For example, a sudden rise in gas prices due to increased taxes would cause increased demand for fuel-efficient cars since people would look for ways to save money on transportation costs while still meeting their needs; conversely, a major oil shortage could cause car manufacturers to reduce production due to lack of raw materials needed for car parts which could lead to lower car sales overall leading to decreased demand.