What is the supply and demand model used for?

The supply and demand model is a fundamental concept in economics that illustrates how prices for goods and services are determined in a market economy. It highlights the relationship between the quantity of a product that producers are willing to sell at various prices (supply) and the quantity that consumers are willing to purchase (demand). When supply and demand intersect, this equilibrium point establishes the market price and quantity of goods exchanged.

This model is crucial for understanding how various factors, such as changes in consumer preferences, income levels, or resource availability, can affect market conditions. It helps to explain price fluctuations and the allocation of resources in an economy, providing insight into how markets operate effectively.