The of supply and demand are fundamental concepts in economics that describe how the market to determine the price and quantity of goods. When demand for a product increases and supply remains constant, the price tends to . Conversely, if supply increases and demand remains constant, the price is likely to .
Understanding these dynamics helps to explain how various factors can influence market behavior, such as preferences, changes in income, or the cost of production. For example, when consumers have more disposable income, the demand for luxury goods may , leading to higher prices if supply does not also grow.
Moreover, government policies, including taxes and subsidies, can also impact supply and demand. A tax on a good can lead to a decrease in its supply, causing the price to . Similarly, subsidies can help lower production costs, resulting in increased supply and potentially lower .
In summary, the interplay between supply and demand is critical for understanding how markets function. By analyzing shifts in these , economists can better predict market trends and prepare for potential in the economy.
