In a market economy, all economic activities are organised through the market. It is an economic system in which economic decisions and the pricing of goods and services are guided solely by the aggregate interactions of a country's citizens and businesses and there is little government intervention or central planning.

In a perfectly competitive market, firms are price-takers. For a price-taking firm, average revenue is equal to market price and marginal revenue is equal to market price.

The set of bundles available to the consumer is called the budget set. The budget set is the collection of all bundles that the consumer can buy with her income at the prevailing market prices. It is represented by the following condition of inequality: P1x1 + P2x2≤M

An increase in supply is a shift of the supply curve to the right (e.g. from the initial supply curve to the new supply curve). It means that sellers are willing to supply a greater quantity of goods at the same price level. Otherwise an increase in supply due to favourable factors (like increase in technology, climate etc) other than price of the good. For example, sellers were willing to supply 2 units of goods at a price of Rs150 before the shift, but are willing to supply 6 units of goods at Rs 150 after the shift.

Supply is a relation that shows the quantities that sellers are willing to make available for sale at alternative prices during a given time period, while all other things remaining the same.