Supply Vs. Demand Curves

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Supply and demand are fundamentals of economics.
Supply and demand are fundamentals of economics. (Image: Image by Flickr.com, courtesy of kevinzhengli)

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.

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