Introduction to Supply and Demand

Supply-and-Demand is a concept to represent the amount of supply and demand for a good or service.
Its main purpose is to seek equilibrium to maximize profit. To clarify, see the graph below:

There are 4 components in the Supply-and-Demand graph: Price, Quantity, Demand, and Supply.

• The Demand curve shows that as prices falls, then quantity rises. This is true as more people will buy when prices are low.
• The Supply curve shows that as prices falls, then quantity falls. Again, more people will buy when prices are low, which will diminish the supply.
• The equilibrium is the point where both the demand and supply curve meets. It is ideally the point in which the greatest profits can be achieved. 

To better explain equilibrium, let's assume that the price of an item was set above equilibrium; the green line below.

The graph shows that supply is greater in quantity than demand. In other words, a surplus of unsold goods or services, which results in less sales.

What if price of an item was set below equilibrium; green line below.

The graph shows that demand is greater in quantity than supply. This resulted in a shortage; or lost opportunities as there were extra demand.

These are the very basics of Supply-and-Demand. In the real world, it is much more complex as things change constantly. The basic model is to help simplify how economics typically work.