Demand and supply theory

Demand and supply theory describes how prices are determined in a market. Demand refers to how much consumers want a product, which tends to decrease as prices rise. Supply is how much producers are willing to offer, which usually increases with higher prices. When demand and supply meet at a certain price, the market reaches an equilibrium. If demand exceeds supply, prices tend to go up, encouraging more production. Conversely, if supply exceeds demand, prices tend to fall, leading to less production. This balance helps explain why prices fluctuate based on consumer preferences and producer capabilities.