Supply and demand

Supply and demand is an economic model in which buyers’ willingness to purchase and sellers’ willingness to sell interact to determine market prices and quantities.

Demand curve: A graph showing the quantity buyers will purchase at different prices, other things held constant. It represents buyers’ willingness to purchase across possible prices.
Opportunity cost: The value of the best alternative forgone when a choice is made. Producing more of a good can require giving up other valuable uses of resources.
Price ceiling: A legal maximum price that sellers may charge for a good or service. A binding ceiling can keep price below equilibrium and create a shortage.
Perfect competition: A market structure with many buyers and sellers, homogeneous products, and no individual price-setting power. The supply-and-demand model most directly describes price-taking competitive markets.
Supply curve: A graph showing the quantity sellers will offer at different prices, other things held constant. It represents sellers’ willingness to sell across possible prices.
Marginal utility: The additional satisfaction or benefit from consuming one more unit of a good or service. Buyers’ marginal benefit helps explain how much they are willing to pay.
Price floor: A legal minimum price below which a good or service may not be sold. A binding floor can hold price above equilibrium and create a surplus.
Monopoly: A market structure in which a single seller faces no close substitute for its product. A monopolist chooses output strategically rather than taking a market price as given.
Market equilibrium: A market condition in which quantity supplied equals quantity demanded at a particular price. The intersection of supply and demand identifies the model’s balancing price and quantity.
Marginal cost: The additional cost of producing one more unit of a good or service. Sellers’ marginal costs help explain the quantities they offer at different prices.

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