by Frank Shostak
One of the few things economists agree on is that prices are determined by supply and demand. This is summarized by means of supply and demand curves, which describe the relationship between the prices and the quantity of goods supplied and demanded.
Within the framework of supply-demand curves an increase in the price of a good is associated with a fall in the quantity demanded and an increase in the quantity supplied. Conversely, a decline in the price of a good is associated with an increase in the quantity demanded and in a decline in the quantity supplied. In short, the law of supply is depicted by an upward-sloping curve while the law of demand is presented by a downward-sloping curve.
The equilibrium price is established at the point where the two curves intersect. At this point, the quantity supplied and the quantity demanded is equal — at the equilibrium price the market is said to “clear.”