What does the concept of supply and demand describe?

The concept of supply and demand fundamentally describes the relationship between the quantity of a good available on the market (supply) and the desire for that good among consumers (demand). This relationship is pivotal in determining market prices and the quantity of goods sold.

When demand for a product increases while supply remains constant, prices tend to rise, reflecting higher competition among consumers for the available goods. Conversely, if supply exceeds demand, prices may fall, as sellers lower prices to attract buyers. This interplay helps to explain how markets operate and adjust in response to changes in consumer preferences and available resources, leading to equilibrium where the quantity supplied matches the quantity demanded.

Understanding this concept allows individuals and businesses to make informed decisions regarding pricing, production, and inventory management, as they navigate the dynamics of market forces.