Supply and demand is the most important model in economics. It explains how prices are set, why they change, and how markets allocate scarce resources without anyone directing them.
The law of demand says that when a good's price rises, people buy less of it — and vice versa. This creates a downward-sloping demand curve. But price is not the only thing that matters. Income, preferences, the price of related goods, and expectations all cause the entire demand curve to shift. Understanding the difference between a movement along the curve and a shift of the curve is essential.
On the other side, the law of supply says that higher prices encourage producers to supply more. The supply curve slopes upward. Input costs, technology, the number of sellers, and government policy can shift supply left or right.
Where supply meets demand, you find market equilibrium — the price at which quantity demanded equals quantity supplied. At this point, there is no surplus and no shortage. The market clears. If the price is too high, a surplus forms and pushes the price down. If the price is too low, a shortage forms and pushes the price up. This self-correcting process is what Adam Smith called the invisible hand.
This unit goes further. You will analyze double shifts — what happens when both supply and demand change at the same time — and explore the price mechanism as an information system. Through interactive graphs, you will drag curves, watch equilibrium move, and build an intuitive understanding that sticks.