Supply and demand are market forces that determine the price of a product. An example is when customers are willing to buy 20 pounds of strawberries for $2 but can buy 30 pounds if the price falls to $1, or when a company offers 5,000 units of cell phones for sale at a price, and only half of them are bought.
Demand indicates the willingness of potential customers to buy a product at a specific price, while supply is the amount of a product that’s available for sale at a given price. The price is a major determinant of demand, although consumer tastes and income, and prices of alternative or complementary products also have an impact. Supply is also determined by price, as traders are willing to offer more for sale when prices are high. Other supply determinants include: cost of production, competition and producer expectations.
An equilibrium price is achieved when the demand of a product equals its supply. If supply exceeds demand, sellers reduce prices to encourage buying, which leads to market equilibrium. If there is more demand for a product than the amount available for sale, sellers hike prices to achieve equilibrium.
The law of demand and supply may also apply in provision of services, such as college education.