Supply and demand curves are used in a competitive market to illustrate how buyers and sellers interact. Both curves are plotted on a graph comparing the price of an item against the quantity of that item.
Function
The demand curve will be a downward-sloping line because there is an inverse relationship between quantity and price. The supply curve will be an upward-sloping line because there is a direct relationship between quantity and price.
Considerations
Supply and demand curves are primarily used in a competitive market model. When implemented in other economic markets such as a monopoly, their functionality becomes limited.
Benefits
Demand and supply curves can be used to explain variables in an economy such as the general price level and the quantity of total output.
Misconceptions
Supply and demand curves are often linear, and resemble straight lines most of the time.
Fun Fact
The equilibrium point is where the supply curve crosses the demand curve. This indicates neither a shortage nor surplus of goods.
