The Definition and Importance of the Supply and Demand Model
Forming the basis for introductory concepts of economics, the supply and demand model refers to the combination of buyers' preferences comprising the demand and the sellers' preferences comprising the supply, which together determine the market prices and product quantities in any given market.
This correlates largely to the opportunity cost of buying more expensive items wherein the expectation is that if the buyer must give up consumption of something they value more to buy the more expensive product, they will likely want to buy it less.
Similarly, the law of supply correlates to the quantities that will be sold at certain price points.
Essentially the converse of the law of demand, the supply model demonstrates that the higher the price, the higher the quantity supplied because of an increase in business revenue hinges upon more sales at higher prices.
The relationship between supply in demand relies heavily on maintaining an equilibrium between the two, wherein there is never more or less supply than demand in a marketplace.
Application in Modern Economics
To think of it in modern application, take the example of a new DVD being released for $15.
Because market analysis has shown that current consumers will not spend over that price for a movie, the company only releases 100 copies because the opportunity cost of production for suppliers is too high for the demand.