The higher the price of a firm’s products, the more of them the firm will want to produce to maximize its revenues; as a result, its supply curve is upward-sloping, Investopedia explains. The demand curve has the opposite slope: the higher a product’s price, the less of it consumers demand.
The concepts of supply and demand are one of the foundations of economic thinking. Supply describes the behavior of producers, and demand that of consumers, taking into account only the quantity and price of a good. As the supply curve rises and the demand curve falls, they meet at a particular point. Its location depends on the exact slope and shape of each curve, which depends on producers’ and consumers’ preferences in that market. This point is the equilibrium, and it is the price at which the product will be bought and sold on the market, states Investopedia.
Supply and demand are key to market economy theories, which state that the market will allocate goods efficiently within the economy, Investopedia says. Optimal allocation is reached at the point of equilibrium, where supply and demand curves intersect. A market can only reach and consistently stay at this point in theory, where producers sell all the products they produce, and consumers buy all the products they wish. There is no wasted supply and no unsatisfied demand.