Supply Vs. Demand Curves

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Supply and demand curves are used in a competitive market to illustrate how buyers and sellers interact. Both curves are plotted on a graph comparing the price of an item against the quantity of that item.

Function

  • The demand curve will be a downward-sloping line because there is an inverse relationship between quantity and price. The supply curve will be an upward-sloping line because there is a direct relationship between quantity and price.

Considerations

  • Supply and demand curves are primarily used in a competitive market model. When implemented in other economic markets such as a monopoly, their functionality becomes limited.

Benefits

  • Demand and supply curves can be used to explain variables in an economy such as the general price level and the quantity of total output.

Misconceptions

  • Supply and demand curves are often linear, and resemble straight lines most of the time.

Fun Fact

  • The equilibrium point is where the supply curve crosses the demand curve. This indicates neither a shortage nor surplus of goods.

References

  • Photo Credit Image by Flickr.com, courtesy of kevinzhengli
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