The Concept of Demand Demand refers to the quantity of a good or service that consumers are willing and able to purchase at various price levels, within a given...
Demand refers to the quantity of a good or service that consumers are willing and able to purchase at various price levels, within a given period. The law of demand states that, all else being equal, higher prices lead to lower quantities demanded, while lower prices result in higher quantities demanded. This inverse relationship between price and quantity demanded is illustrated by the demand curve.
Supply refers to the quantity of a good or service that producers are willing and able to offer for sale at various price levels, within a given period. The law of supply states that, all else being equal, higher prices lead to greater quantities supplied, while lower prices result in lower quantities supplied. This positive relationship between price and quantity supplied is illustrated by the supply curve.
The market equilibrium price and quantity are determined by the intersection of the demand and supply curves. At this point, the quantity demanded equals the quantity supplied. If the market price is above equilibrium, there will be a surplus (excess supply), leading to downward pressure on prices. If the market price is below equilibrium, there will be a shortage (excess demand), leading to upward pressure on prices.
Problem: Suppose the demand for widgets is given by the equation Qd = 100 - 2P, and the supply is given by Qs = 20 + 3P. Find the equilibrium price and quantity.
Solution:
Understanding the forces of demand and supply is crucial in analyzing market behavior, resource allocation, and informing policy decisions related to taxation, subsidies, and regulations.