Editing Market economy (section)

== The role of supply and demand in a market economy ==
Supply and demand play an instrumental role in driving market economies by setting both prices and quantities traded in markets. Supply is defined as any increase in price leading to an increase in supply from producers; demand on the other hand means any drop leads to an increase in desired quantities from consumers; these two laws meet at equilibrium when provided quantity equals quantity demanded - known as equilibrium price/quantity equilibrium point.<ref>{{Cite journal |last1=Jadidzadeh |first1=Ali |last2=Serletis |first2=Apostolos |date=2017-03-01 |title=How does the U.S. natural gas market react to demand and supply shocks in the crude oil market? |url=https://www.sciencedirect.com/science/article/pii/S0140988317300166 |journal=Energy Economics |language=en |volume=63 |pages=66–74 |doi=10.1016/j.eneco.2017.01.007 |s2cid=157939150 |issn=0140-9883 |access-date=2023-04-21 |archive-date=2020-06-23 |archive-url=https://web.archive.org/web/20200623201303/https://www.sciencedirect.com/science/article/pii/S0140988317300166 |url-status=live }}</ref> Prices play an extremely vital role in market economies by providing important information about commodity and service availability. When there is strong demand but limited supply, prices increase, signaling to producers that there may be opportunities to increase profits by producing more of that product.<ref>{{Cite journal |last=Kiseleva |first=Irina Anatolievna |date=2021-07-10 |title=Simulations of Supply and Demand Forecasting in A Market Economy |url=http://www.revistageintec.net/index.php/revista/article/view/2218 |journal=Revista Gestão Inovação e Tecnologias |volume=11 |issue=4 |pages=1669–1684 |doi=10.47059/revistageintec.v11i4.2218 |s2cid=236467969 |access-date=2023-04-21 |archive-date=2022-01-27 |archive-url=https://web.archive.org/web/20220127201529/https://www.revistageintec.net/index.php/revista/article/view/2218 |url-status=live }}</ref> Conversely, when there is low demand with increased supply then prices reduce, showing manufacturers they must either reduce output or find methods of cutting costs in order to stay competitive and remain profitable.

External factors, including shifting technological standards, new government laws, and natural catastrophes can have a substantial impact on supply and demand. Technological innovations may increase supply, while laws issued by governments could decrease it or even demand. Natural disasters have the ability to severely disrupt supply chains, creating shortages of key items that increase costs while simultaneously decreasing demand. Supply and demand play an indispensable role in any market economy by ensuring prices reflect market forces accurately, adapting accordingly as conditions shift between supply and demand situations, while producers adjust production according to price signals from consumers, fulfilling customers' requests while giving individuals freedom in making purchasing choices based on personal preferences or financial constraints. Thus supply and demand play an instrumental part in shaping and stabilizing economies governed by market forces.