Supply and demand

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The price of a product is determined by a balance between production at each price (supply) and the desires of those with purchasing power at each price (demand). The graph shows an increase in demand from D1 to D2, along with a consequent increase in price and quantity sold of the product.
The price of a product is determined by a balance between production at each price (supply) and the desires of those with purchasing power at each price (demand). The graph shows an increase in demand from D1 to D2, along with a consequent increase in price and quantity sold of the product.

Supply and demand is a model of microeconomics. It looks at how a price is formed. This is done because producers and consumers interact with each other. This will fix the price for a certain type of good. In Perfect competition the quantity demanded (demand) and the quantity supplied will be equal. This will fix the price. There will be economic equilibrium.

It was Alfred Marshall who first described the model.

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