Supply and Demand
Definition
Supply and demand is the economic concept that describes the relationship between the availability of a product or service (supply) and the desire for it (demand), which together determine its price in the market.
Analogy
Think of supply as a food truck selling ice cream cones, and demand as a group of friends on a hot summer day. If there are many ice cream cones available (high supply) but only a few friends wanting to buy them (low demand), the price will be low. However, if there are limited ice cream cones available (low supply) but many friends eager to buy them (high demand), the price will be high.
Related terms
Market equilibrium: The point where supply and demand meet, resulting in an agreed-upon price for a product or service.
Elasticity: A measure of how sensitive the quantity demanded or supplied is to changes in price.
Surplus: When supply exceeds demand, leading to excess inventory or unsold goods.
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