Lesson 14 — Activity 3: Supply and Demand
Completion requirements
Lesson 14 — Activity 3:
Supply and Demand
Warm Up
One of the most basic concepts of economics is supply and demand. These are really two separate things, but they are almost always talked about together. In this activity, you will learn about the concept of supply and demand.
Now let's take a look at the concept of supply and demand. As you already learned, this is one of the main points of the market economy.
Supply is how much of something is available. For example, if you have nine baseball cards, then your supply of baseball cards is nine.
Demand is how much of something people want. It sounds a little bit harder to measure, but it really isn't. To measure demand, we can use a very simple numbering system, just like the supply one. For example, if eight people want baseball cards, then we can say that the demand for baseball cards is eight.
Supply is how much of something is available. For example, if you have nine baseball cards, then your supply of baseball cards is nine.
Demand is how much of something people want. It sounds a little bit harder to measure, but it really isn't. To measure demand, we can use a very simple numbering system, just like the supply one. For example, if eight people want baseball cards, then we can say that the demand for baseball cards is eight.
The demand for products sets the prices. If there is no demand for a product, then it will not be produced. If more people want something, they will be willing to pay more for it.
A good example
is the newest basketball shoes. Everybody wants them, and they will be
willing to pay more than they normally would to get them. The demand
goes up. Why? Because more people want them. The price also goes up.
Why? Because the seller knows he or she can get more money for the
product because it is in demand.
@unsplash
In the same
way, the price will go down when the demand goes down. When the new
style of basketball shoes comes out, everyone wants the new shoes. The
old shoes don't seem so new anymore. The seller still wants to sell
those older shoes, since he or she has a lot still in stock. So, the
price goes down. Why? The seller hopes that people will be willing to
buy the older shoes at a lower price. After all, the older shoes aren't
that much older or worse than the brand new shoes.
Let's look at what happens when a new gaming system or cell phone is about to be made available to consumers. The company restricts the availability of the products by slowly releasing them to the retailers like Best Buy, Visions, and Walmart.
A good example is the newest basketball shoes. Everybody wants them, and they will be willing to pay more than they normally would to get them. The demand goes up. Why? Because more people want them. The price also goes up. Why? Because the seller knows he or she can get more money for the product because it is in demand.
@unsplash
In the same way, the price will go down when the demand goes down. When the new style of basketball shoes comes out, everyone wants the new shoes. The old shoes don't seem so new anymore. The seller still wants to sell those older shoes, since he or she has a lot still in stock. So, the price goes down. Why? The seller hopes that people will be willing to buy the older shoes at a lower price. After all, the older shoes aren't that much older or worse than the brand new shoes.
Since the
number of devices available is fewer than what is needed to meet the
demand, the demand for them increases because they are harder to get.
This is why consumers will line up for days and hours before the latest
product is about to be released.
@creativecommons
Since the number of devices available is fewer than what is needed to meet the demand, the demand for them increases because they are harder to get. This is why consumers will line up for days and hours before the latest product is about to be released.
@creativecommons
Click on the Play button below to watch a video about the release of Apple's iPhone 5.
This strategy of slowly making the units available to the consumer is a prime example of restricting the supply. Since the supply is restricted, it increases the demand significantly. This is an extremely effective marketing strategy as it also allows the seller of the product to increase the price as the demand increases.
Self-check!
Try This!
Try the questions below on your own first, and then click on the tab to check your answer! You can look back in the lesson to find the answer.
- This refers to how many of a certain good or service are available for people to purchase.
-
This means how many people wish to buy that good or service.
- True or false: Usually as prices rise, the supply or amount of a product increases, and as prices fall, the supply decreases as more people can afford the product.