2.1 Supply and Demand

Supply and demand form the foundation of microeconomic analysis, representing the core principles governing how markets allocate resources. The interaction between supply and demand determines the price of goods and services in a market, influencing production decisions, consumption patterns, and overall economic equilibrium.

Supply indicates the quantity of a good or service that producers are willing and able to offer at different price levels. Key factors influencing supply include production costs, technology, the prices of related goods, and expectations of future prices.

The law of supply suggests that, provided other factors remain constant, an increase in the price of a good will lead to an increase in the quantity supplied. The supply curve, which slopes upwards, illustrates the positive relationship between price and quantity supplied.