What Is the Concept of Demand and Supply?

By Staff WriterLast Updated Apr 6, 2020 12:13:09 AM ET

The concept of demand and supply states that for a market to function, producers must provide the goods and services that customers need. "Supply" represents the amount of goods a market can provide, while "demand" stands for the amount of goods customers are willing to buy.

Prices of goods in the market are defined by the demand of the goods. The whole process begins with consumers demanding for goods. When the demand is high, the suppliers can set high prices for the goods. This, in turn, fuels producers to make more goods to earn profits. However, if the prices are too high, only a few customers may buy the goods. When supply and demand reach the same level, the market is said to be at equilibrium.