Supply and demand
Because of their importance to the development of economic theory, an appreciation of the significance of the concepts of supply and demand is essential to the understanding of much of the subject-matter of economics. This article seeks to explain their significance in non-technical terms, as well as introducing the lay reader to some of the associated terminology used by economists and providing a simple introduction to the concepts for students of economics.
Definitions of the terms used in the article that are shown in italics can be found on the Related Articles subpage, and a selection of the diagrams and mathematical equations that are conventionally used for teaching purposes can be found on the Tutorials subpage
Overview: origins and applications
The proposition that prices are determined by supply and demand is so familiar that it seems like a statement of the obvious. In fact, it was not generally known, even to eminent intellectuals such as Adam Smith, John Stuart Mill and David Ricardo, until the idea was popularised by Alfred Marshal towards the end of the nineteenth century [1]. It has since been termed "the law of supply and demand" and is often treated as though it were as firmly established as the law of gravity, when in fact it is what Marshal termed "a statement of a tendency" deduced from some generalisations about human behaviour.