Ok, let me try to tackle Supply and Demand in kind of the same way I do for my students.
Let's say I'm going to show a movie on Friday during class and lunch. I will be selling pizzas for the people attending. I ask who wants pizza. 35 hands go up. Then I ask how many slices each. I get about 100 slices. Each pizza has 8 slices, so I would have to buy 14 pizzas. Then I say that I'm not going to be able to afford 14 pizzas unless you pay for your own. How many would be willing to buy pizza at $.10? Everyone is still in. Then I say, show me the money. Because demand is not just about wanting the pizza, it's also about being able to pay for it. I do the same for $.25 and say that still won't cover my costs. Each pizza will cost me about $10. $.50, and now fewer people want to spend money on pizza. Say, the demand has gone down from 100 slices to 80. When I get to $1.00 a slice, I get about 50 slices, when I go to $2.00 a slice, I have about 5 people still interested.
The T-chart would look something like:
D (demand)
P Q
0 100
.10 100
.25 90
.50 80
.75 70
1.00 50
2.00 5
That's the demand curve. Now my real price per pizza is only $5, but I didn't tell them that. I need to make about $.65 a slice to cover my costs. When the demand reaches my acceptable limits of supply, we'll come to a fair cost. I ask them what the demand would be for $.75 a slice. The Q (quantity) = 70 That is, I make $52.50 and I get two slices of my own. My actual cost is $45 plus tip to the driver, $5, equalling $50. I make a profit of $2.50 and lunch. The students are happy because it's still cheaper than cafeteria lunch and they get to eat in class. I'm happy because I don't lose money.
The Supply Curve looks very simple:
P Q
1 $5
2 $10
...
5 $25
8 $40
9 $45
10 $50
...
13 $65
I draw these figures on the board as I do it. I explain that the supply curve marks the price for every quantity. As the quantity goes up, so does the price.
Demand is just the opposite. As the price goes down, the quantity goes up.
Where those two curves meet is the point of sale, known as the point of Equilibrium.
The Supply and Demand graph shows a
snapshot of the supply and demand at
one moment in time. The only factors that change this curve are price and quantity.
There are factors that will affect all quantities at all prices, and they will shift the supply or demand curve. These are inflationary, deflationary, or neutral in nature, but they change the S + D over time.