AP Microeconomics
Advanced Placement Microeconomics analyzing individual economic decision-making.
Supply and Demand
The Forces That Shape Markets
Supply and demand are the backbone of market economies. They determine prices and quantities of goods and services.
Demand: What Buyers Want
Demand is how much of a good or service people are willing and able to buy at different prices. When prices go up, people usually buy less. When prices go down, people buy more.
Supply: What Sellers Offer
Supply is how much of a good or service sellers are willing and able to produce at different prices. Higher prices often mean producers want to make and sell more.
The Market Equilibrium
The magic happens where supply meets demand—the equilibrium price. At this price, the amount buyers want to buy equals the amount sellers want to sell.
Shifts in Supply or Demand
Changes in factors like income, tastes, or production costs can shift supply or demand, changing the market price and quantity.
Why It Matters
Understanding supply and demand helps explain why products go on sale, why prices change, and how markets work around us every day.
Examples
When a popular sneaker drops and everyone wants it, demand increases and so does the price.
A bumper crop of strawberries increases supply, leading to lower prices at the store.
In a Nutshell
Supply and demand set prices and quantities in markets through their interaction.