What is supply and demand and how do they determine price?

Demand: As price ↓, quantity demanded ↑ (people buy more when things are cheaper)
Supply: As price ↑, quantity supplied ↑ (producers make more when they can charge more)

The equilibrium price is where supply meets demand — the quantity sellers want to sell equals the quantity buyers want to buy.

If price is above equilibrium → surplus (supply > demand) → price falls
If price is below equilibrium → shortage (demand > supply) → price rises

Shifts: If demand increases (more buyers, higher income), the demand curve shifts right → higher equilibrium price. If supply increases (cheaper production), supply shifts right → lower price.