What does supply and demand refer to?

Supply and demand refers to the fundamental economic principle that describes the relationship between the availability of a product (supply) and the desire for that product by consumers (demand). When supply is high and demand is low, prices tend to decrease, while low supply and high demand typically lead to higher prices. This interplay determines how markets operate and affects pricing, production levels, and consumer behavior. Understanding this relationship is crucial for businesses, as it helps them make informed decisions about production, inventory, and pricing strategies to meet consumer needs effectively.