Supply and demand.

In plain English

Supply and demand describes how price and quantity adjust until the amount buyers want to buy equals the amount sellers want to sell. When demand rises and supply cannot keep up, the price climbs until enough buyers drop out. When supply grows faster than demand, sellers cut prices until enough buyers step in. The meeting point is called the equilibrium price, and it moves whenever incomes, tastes, input costs, technology, or the number of competitors change. Real markets reach it slowly, because prices in many industries are slow to adjust and information is uneven.

01Why it matters

Almost every price a household faces, from rent to airfare to wages, is the output of this tug of war, so knowing which side moved tells you whether a price jump is likely to stick or fade.

02The math, step by step

Say a town has 100 apartments and 100 renters at $1,500 a month. A new employer brings 20 more renters with no new building. Now 120 people chase 100 units, and bidding pushes rent to about $1,800, a 20 percent rise, until either renters leave or 20 new units get built.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

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