Wikipedia:Today's featured article/December 15, 2004

A typical supply and demand graph

In microeconomic theory, the partial equilibrium supply and demand economic model originally developed by Alfred Marshall attempts to describe, explain, and predict the price and quantity of goods sold in competitive markets. It is one of the most fundamental models, widely used as a basic building block in a wide range of more detailed economic models and theories. The theory of supply and demand is important in the functioning of a market economy in that it explains the mechanism by which many resource allocation decisions are made. In general, the theory claims that where goods are traded in a market at a price where consumers demand more goods than firms are prepared to supply, this shortage will tend to increase the price of the goods. Those consumers that are prepared to pay more will bid up the market price. Conversely, prices will tend to fall when the quantity supplied exceeds the quantity demanded. This price/quantity adjustment mechanism causes the market to approach an equilibrium point, a point at which there is no longer any impetus to change. (more...)

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