What are the supply curve and the demand curve???

Question

What are the supply curve and the demand curve???

Answer 1

Demand and Supply Curves are tools Economists use as the basis for modelling markets.  Both are mapped in 2-D space with Price on the Y axis and Quantity (of goods) on the X.

The Demand Curve shows the relationship between the Quantity of goods a consumer demands given a certain Price for the good.  As we tend to buy more of something when it's cheaper, the demand curve is assumed to be downward sloping.

The Suppy Curves shows the relationship between Quantity of good supplied to the market by firms given a certain Price they can sell it for.  As firms tend to want to increase their revenues, they will supply more of a good when the price is high, and the supply curve is assumed to be upward sloping.

When we sketch the supply and demand curves for a certain good on the same set of axes, the intersection between the two is the equilibrium price and quantity of the good in the market.  That is to say, prices and quantities tend toward the equilibrium over time and are usually stable once they reach it.

If the price is above the equilibrium, there will be an oversupply of goods and firms are producing more than consumers are willing to buy.  Firms will scale back production until the equilibrium is reached.  If the price is below the equilibrium, demand will outstrip supply and firms will feel pressure to increase production until equilibrium is regained.