A fundamental analytical tool of economics, mostly microeconomics, holding that the price is determined where the market clears, that is when the quantity of a good or service supplied meets the quantity demanded.
The idea of demand represents the general activities of consumers, while that of supply indicates those of producers. Demand can be illustrated as the quantity of the good or service consumers are both willing and able to buy at a series of distinct prices. Similarly, supply is the quantity of the good or service producers are both willing and able to supply at a series of distinct prices provided by the market.
They are drawn in diagrams as curves, representing their dynamic relationships with a continuum of prices.
The market value or price of a good or serivce is determined by an interaction of both supply and demand. It is determined at the point where quantity of supply equals to quantity of demand, thus a dynamic equilibrium. The law of supply and demand commands the price to be at the equilibrium point. If it is lower than equilibrium price, it will go up by reason of extra demand; on the other hand, if it is higher than equilibrium price, it will go down by reason of less demand.