The concept of and is fundamental to understanding how markets operate. Supply refers to the quantity of a good or service that producers are willing to sell at various prices. Conversely, demand is the quantity that consumers are willing to purchase at different price levels. The interaction between supply and demand determines the market price, which is the price at which the quantity supplied equals the quantity demanded.
When there is a change in consumer preferences, such as an increase in the demand for electric cars, the demand curve shifts to the , leading to higher prices. This increase represents a of consumers willing to buy the product at the given price, prompting producers to increase output. On the other hand, if there is a sudden increase in production costs, this can shift the supply curve to the , resulting in a decrease in the quantity supplied at every price level.
Market can occur when the allocation of goods and services is not efficient. This can happen due to various reasons such as , which are costs or benefits that affect third parties who are not directly involved in the transaction. For example, pollution from a factory imposes costs on the surrounding community, illustrating a negative externality. Effective government intervention and regulatory policies are often required to correct these market failures and achieve a more economic outcome.
Keywords
left | equilibrium | demand | right | supply | failures | balanced | externalities | surplus |
