Business
What is Supply and demand?
Supply and demand is the core model of how prices form in a market. Demand is how much buyers want at each price; supply is how much sellers will provide. The price settles where the two balance.
See it, don’t just read it.
Watch a 2-minute lesson with voice + animation that explains supply and demand.
Key things to understand
- 1Demand usually falls as price rises; supply usually rises as price rises.
- 2The 'equilibrium' price is where quantity demanded equals quantity supplied.
- 3If demand jumps or supply drops, prices rise; if demand falls or supply grows, prices fall.
- 4It explains everyday prices — from concert tickets to groceries to housing.
Frequently asked questions
- What is the equilibrium price?
- The price at which the amount buyers want exactly matches the amount sellers offer, so there's no shortage or surplus.
- What happens when demand exceeds supply?
- Prices tend to rise until the higher price cools demand and draws out more supply, restoring balance.
- How is this different from inflation?
- Supply and demand set the price of a specific good; inflation is a broad rise in the overall price level across the economy.