ABSTRACT
This chapter introduces the fundamental economic model of supply and demand, a core tool for understanding how prices and quantities are determined in competitive markets. It explains how demand curves reflect buyers’ willingness to pay and how supply curves capture sellers’ willingness to sell at various prices. Using realworld examples such as rice and palladium markets, the chapter examines how shifts in supply and demand—caused by factors like income changes, input costs, regulations, or expectations—affect market outcomes. Concepts such as market equilibrium, excess demand, excess supply, and comparative statics are explored. Special attention is given to the importance of assumptions like price-taking behavior and homogeneous products. The chapter also discusses the role of functional forms and curve shapes in empirical applications. This foundational analysis prepares readers to interpret price fluctuations, evaluate policy interventions, and understand market dynamics.
