Supply and demand are economic forces that determine the amount of a product that is produced and its price. The supply of a product is the amount of it that businesses are willing and able to offer for sale at alternative prices. Generally, the higher the price is, the greater the amount supplied will be. Similarly, the demand for a product is the amount of it that users can and would like to buy at alternative prices. Demand also depends on the price, but in the opposite way. Usually, the quantity demanded is lower at high prices than at low ones. Because the amount that producers actually sell must be the same as the amount that users actually buy, the only price at which everyone can be satisfied is the one for which supply equals demand. This is called the equilibrium price.
The supply and demand diagram with the Supply and demand article in the print version of The World Book Encyclopedia shows how these economic forces operate. Using the market for onions as an example, the supply curve SS’ shows the number of pounds produced each month at every possible market price. Higher prices encourage farmers to produce more onions, and low prices discourage production. Consumers’ reactions are shown by the demand curve DD’, which shows how many pounds of onions customers want to buy each month at every possible price. At low prices, they want many onions. At high prices, the customers use other vegetables.
Supply and demand curves cross at a certain price (20 cents a pound in the example). When this is the market price, suppliers will offer just the quantity that users wish to buy. At any higher price, farmers will produce more onions than consumers are willing to buy, and competition among farmers will force the price down. At prices lower than equilibrium, purchasers will demand more onions than are available, and the scarcity of onions will drive the price up.