Concept 7
Supply & Demand
Buyers and sellers are always at war over price. Where supply meets demand they call a truce: equilibrium.
The most important concept in economics is that of the relationship between supply and demand. This concept explains so much of what happens in economics and supports so many other topics in economics. It has relevance in microeconomic and macroeconomic concepts. Additionally, this concept highlights why the schism between businesses and households exist, as referenced in the Circular Flow of the Economy.
In this model, businesses generally represent supply and the households are usually representative of demand. Supply and demand is by definition a war fought in an economic battlefield. Somewhere in the middle is a truce called EQUILIBRIUM. So, unless specified otherwise in the details of a supply and demand graph, that is an assumption that will carry through on the majority of the supply and demand graphs discussed in future concepts in this book.
| Price | Qty demanded | Qty supplied |
|---|