Supply and demand
Supply and Demand
Supply and demand is an economic model of price determination in a market. It postulates that, holding all else equal, in a competitive market, the unit price for a particular good, or other traded item such as labor or liquid financial assets, will vary until it settles at a point where the quantity demanded (at the current price) will equal the quantity supplied (at the current price), resulting in an economic equilibrium for price and quantity transacted.
Pronunciation
/səˈplī ənd dəˈmand/
Etymology
The term "supply and demand" originated in the 1760s in writings by Adam Smith, David Ricardo, and Thomas Robert Malthus. The concept has roots in the economic theory of the Scottish Enlightenment and was one of the primary foundational elements in the theories of classical economics.
Related Terms
- Economic Equilibrium: The state in which market supply and demand balance each other, and as a result, prices become stable.
- Price Elasticity of Demand: A measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price.
- Market Economy: An economic system in which production and prices are determined by unrestricted competition between privately owned businesses.
- Microeconomics: The part of economics concerned with single factors and the effects of individual decisions.
- Macroeconomics: The part of economics concerned with large-scale or general economic factors, such as interest rates and national productivity.
See Also
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