What determines the price and output in a given market?

The price and output in a given market are primarily determined by the forces of demand and supply. Demand refers to the quantity of a good or service that consumers are willing and able to purchase at various prices, while supply indicates the quantity that producers are willing and able to sell at those prices. The interaction between demand and supply determines the equilibrium price—the price at which the quantity demanded equals the quantity supplied—and the corresponding quantity exchanged in the market.

When demand increases while supply remains constant, the equilibrium price tends to rise. Conversely, if supply increases while demand remains constant, the equilibrium price typically falls. This fundamental concept outlines how market forces work to establish price levels and output quantities in a competitive market environment.