Supply & Demand

All of economics is built upon three words: supply and demand. This baby basic intro concept is simple. Supply refers to how much of a thing there is, demand refers to how many people want that thing. Easy! Unless you can calculate supply and demand and chart it out on a graph, however, the idea has no application and is just a fun smart-sounding thing to say. Let's get some understanding of how supply and demand interact in a basic economic model.

Let's start with a look at the Supply Curve.

First of all, the supply curve always ascends. It may start at the vertex of quantity (Q) and price (P), or it may intersect your axes elsewhere. For sure though, the supply curve starts low on the left and rises toward the right. This indicates the increase in product quantity suppliers will sell as the market price rises. Basically, when they can get more money per unit, a company is more inclined to produce more units.

The other side of  this graph's coin is the Demand Curve.

The demand curve always descends. This is a visual demonstration of how much or little a consumer is willing to pay for any given quantity of product (Q) at any given price point (P). The less an item costs, the more a consumer is willing to buy. The more expensive a product is, the fewer consumers are willing to buy.

Simple, right? Next, let's examine how they line up and interact. Read the next blog post to learn about Market Pressures and how to calculate Market Equilibrium.