Concept
Supply and demand
Overview
In microeconomics, supply and demand is an economic model of price determination in a market. It postulates that, holding all else equal, the unit price for a particular good or other traded item in a perfectly competitive market, will vary until it settles at the market-clearing price, where the quantity demanded equals the quantity supplied such that an economic equilibrium is achieved for price and quantity transacted. The concept of supply and demand forms the theoretical basis of modern economics.
In situations where a firm has market power, its decision on how much output to bring to market influences the market price, in violation of perfect competition. There, a more complicated model should be used; for example, an oligopoly or differentiated-product model. Likewise, where a buyer has market power, models such as monopsony will be more accurate.
In macroeconomics, as well, the aggregate demand-aggregate supply model has been used to depict how the quantity of total output and the aggregate price level may be determined in equilibrium.
However, the Sonnenschein-Mantel-Debreu theorem demonstrates that aggregate demand functions do not necessarily inherit the properties of individual rationality, meaning that market-wide supply and demand curves can theoretically take almost any shape. This result implies that the "Law of Demand" may fail at the macro level, challenging the assumption that competitive economies naturally gravitate toward a unique or stable equilibrium.
Overview adapted from Wikipedia (CC BY-SA 4.0; see the article history for authors).
In the original texts
Passages from public-domain books where Supply and demand is discussed.
So that supply and demand are but another expression for reciprocal demand; and to say that value will adjust itself so as to equalize demand with supply, is, in fact, to say that it will adjust itself so as to equalize the demand on one side with the demand on the other.
John Stuart Mill, Principles of Political Economy
states what it is; names the idea
And eventually the process of exchange becomes at certain places so active, as to bring about daily meetings of buyers and sellers—a daily wave of accumulation and distribution of cotton, or corn, or capital. If from exchange we turn to production and consumption, we see undulations, much longer indeed in their periods, but almost equally obvious. Supply and demand are never completely adapted to each other; but…
Herbert Spencer, First Principles
states what it is; names the idea
The huckstering spirit penetrates the whole language, all relations are expressed in business terms, in economic categories. Supply and demand are the formulas according to which the logic of the English bourgeois judges all human life. Hence free competition in every respect, hence the _regime_ of _laissez-faire, laissez-aller_ in government, in medicine, in education, and soon to be in religion, too, as the State…
Friedrich Engels, The Condition of the Working-Class in England in 1844 with a Preface written in 1892
states what it is; names the idea
Supply-and-demand shall do its full part, and Free Trade shall be free as air;--thou of the shotbelts, see thou forbid it not, with those paltry, _worse_ than Mammonish swindleries and Sliding-scales of thine, which are seen to be swindleries for all thy canting, which in times like ours are very scandalous to see! And Trade never so well freed, and all Tariffs settled or abolished, and Supply-and-demand in full…
Thomas Carlyle, Past and Present Thomas Carlyle's Collected Works, Vol. XIII.
names the idea; opens on it
In the modern arrangements of society, it is no uncommon thing that a man of genius must, like Butler, "ask for bread and receive a stone;" for, in spite of our grand maxim of supply and demand, it is by no means the highest excellence that men are most forward to recognize. The inventor of a spinning-jenny is pretty sure of his reward in his own day; but the writer of a true poem, like the apostle of a true…
Thomas Carlyle, Life of Robert Burns
states what it is; opens on it; names the idea
Related ideas
- Cato Institute
- John Locke
- Adam Smith
- Function (mathematics)
- Francis Hutcheson (philosopher)
- William Stanley Jevons
- Paul Samuelson
- Classical economics
- Kural
- Ibn Taymiyya
- Aggregate demand
- Piero Sraffa
- Carl Menger
- The Wealth of Nations
- David Ricardo
Opposing perspectives
Place in the tradition
Part of Liberalism.