Supply and Demand © 2013 Created by Sally Camden ~ The Reflective Educator ~

Supply and Demand

© 2013 Created by Sally Camden ~ The Reflective Educator ~ www.thereflectiveeducator.com

Introduction In our economy, people trade goods and services for money. People pay money for gas at a gas station. They also pay money to be served a meal at a restaurant. The law of supply and demand explains the price of a product or service.


CompareSupply

Supply is how much of a product or service is available for people to purchase.

Demand Demand is how much of a product or service people are willing to buy.


Supply and Demand For example, a t-shirt company might make 500 shirts. The company would have a supply of 500 shirts available to sell to shoppers. How many t-shirts people want to buy represents the demand for the shirts.


Supply in a Market Economy

Supply can affect the price of goods and services in the market place. Supply is how much of something is available to be bought by consumers. When there is a limited supply, the price goes up.


Low Supply Some products or services are in high demand because there is a low supply. For example, diamonds are expensive because they are rare.


Low Supply Also, professional athletes often get paid millions of dollars because there are so few people who can play at their level of skill.


Large Supply Sometimes the opposite is true. Instead of a limited supply, there is a large supply. When this happens, prices go down. There is more than enough for everyone to have what they want or need. If a store has too much of a product, they will lower the price hoping customers will buy it.


An Inverse Relationship There is an inverse relationship between supply and price. The less there is, the higher the price. The more there is, the lower the price. We say it is an inverse relationship because when one goes down, the other goes up.


Demand in a Market Economy

Low demand leads to low prices. If a company makes an unpopular product, there will be low demand. Consumers won’t be interested in buying it.


Low Demand Another reason for low demand is the time of year. There is very low demand for Christmas trees in August. However, demand goes up for the trees the closer it gets to December. When there is low demand, the price drops.


High Demand High demand causes prices to increase. When lots of shoppers want a toy, for example, there is a high demand. Stores might charge customers more money to buy the toy.


Law of Supply and Demand

Sometimes weather conditions influence the demand. When there is a lot of snow, more people want snow shovels and salt to get rid of the snow. This can also cause the price of these items to increase.


A Direct Relationship There is a direct relationship between demand and price. More demand leads to a higher price. Less demand leads to a lower price. The law of supply and demand affects the prices we pay for goods and services in our economy.


supply

How much of a product or service is available for people to purchase.


demand

How much of a product or service people are willing to buy.


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Supply and Demand © 2013 Created by Sally Camden ~ The Reflective Educator ~