The supply-demand model combines two important concepts: the supply curve and a demand curve.
Supply curve – Relationship between the quantity of a good that producers are willing to sell and the price of the good.
**The higher the price, the more firms are able and willing to produce and sell. The quantity supplied can also depend on production costs, including wages, interest charges, and the costs of raw materials.
Movements along the supply curve can represent changes in price. Changes in other variables are shown by a shift of the supply curve itself.
Demand curve – Relationship between the quantity of a good that consumers are willing to buy and the price of the good.
Substitutes – Two goods for which an increase in the price of one leads to an increase in the quantity demanded of the other.
Complements – Two goods for which an increase in the price of one leads to a decrease in the quantity demanded of the other.