Supply and demand theory

Supply and demand theory is a fundamental economic concept that describes how prices are determined in a market. Demand refers to how much of a product consumers want at various prices; typically, as prices go down, demand increases. Supply reflects how much of a product producers are willing to sell at different prices; usually, higher prices encourage more production. The interaction between supply and demand establishes an equilibrium price, where the quantity supplied equals the quantity demanded. Shifts in either supply or demand can lead to changes in price and availability of goods in the market.