supply and demand
The economic model describing the relationship between the availability of a product and the desire for it, which determines price.
Example
“When demand for housing exceeded supply, prices rose sharply in the city.”
Memory Tip
SUP-ply what's available, DEM-and what's wanted. When demand > supply, prices rise.
Why It Matters
Understanding supply and demand helps you make better purchasing decisions and recognize when prices are likely to change. By knowing how these forces work, you can time major purchases strategically, such as buying seasonal items when supply is high and prices are lower.
Common Misconception
Many people think that high prices always mean high demand, but sometimes prices rise because supply decreases while demand stays the same. A product can also be expensive simply because it is scarce, not necessarily because everyone wants it.
In Practice
During winter, heating oil prices typically rise from 2 dollars per gallon to 3 dollars per gallon because heating demand increases while supply cannot keep up quickly. Conversely, when spring arrives and fewer people need heating, the same oil drops back to 2 dollars per gallon as demand falls and sellers compete to move inventory.
Etymology
Supply (what's available) + demand (what's wanted) — the two fundamental forces of any market.
Common Misspellings
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See Also
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