It’s a few days before Valentine’s Day Stores burst with heartshaped heartshaped boxes of candy and fancy Valentine’s cards Florists make hundreds of bouquets of flowers They know that consumers consumers are going to want to buy these items now However they also know that on the day after Valentine’s Day almost no one will want them They are hoping to sell as many of the items as possible before the holiday ends Meanwhile shoppers are also buying things like television television sets crayons and new coffee makers They might be looking for these items in January or July and they expect that they can find them any time of year Businesses know this so they try to keep these types of items available at all times These are two examples of what is known in economics economics as supply and demand Demand is how much of a product or service buyers want Supply is how much of a product or service the market which includes manufacturers manufacturers and stores can offer Sometimes demand is based on a holiday like Valentine's Valentine’s Day or a certain time of year For instance the demand for air conditioners will be much higher in summer This is an example of seasonal demand which only lasts for a short time Goods in seasonal demand are popular during a specific specific time Demand for those goods isn’t nearly as high outside outside of that seasonal period Demand for products that consumers want all year long is not based on a holiday or specific period of time unlike 4 INTRODUCTION
Seasonal items like this fancy candy for Valentine’s Day are only in demand at a specific time of year seasonal demand Supply and demand for these types of products fluctuates or changes all the time depending on a variety of factors like fashion trends or the popularity of a new item A product or service might be in high demand but have a limited supply At other times there might be a big supply of a good or service but little demand for it Economies exist because people have needs and wants These needs and wants are satisfied when goods are produced and sold In poor countries people can’t afford even basic necessities like food and clothing In wealthy 5
countries like the United States people can choose from a huge variety of different goods to buy They can often afford purchases beyond the necessities things they want but don’t need as well Supply and demand illustrate how needs and wants work in the economy and how producers and consumers interact with each other It is a conversation but instead of words this interaction uses money Consumers spend money to show that they demand a product and manufacturers manufacturers and stores supply that demand to earn money themselves themselves This is one of the most basic ideas of economics and a free market economy In a free market the price of a product product or service is determined on the basis of how much of a demand there is for it and how much of a supply exists Supply and demand can determine if consumers can buy a certain product or service and how much they have to pay for it It can force consumers to shop at different places than usual Supply and demand influences many of the choices that consumers make every single day whether they are buying something seasonal trendy or something that they need all the time It is a constant complicated balancing balancing act between people who make and sell products and services and the people who buy or use them 6 Supply and Demand
CHAPTER ONE We Demand It Imagine that a popular electronics company has just released its newest version of a cell phone So many consumers are eager to have it that they stand in line for hours outside stores so they can buy one There aren’t enough phones available for everyone who wants one yet so many people are disap pointed Some of these people are willing to pay much more than the phone’s retail price just to have one At the same time farmers in Florida have had an excel lent year for growing oranges In fact their crops are so good that they have more oranges than people want to buy Farmers might have to sell their oranges to stores for a lower price In turn grocery stores put oranges on sale to tempt shoppers into purchasing them The cell phone and orange scenarios are examples of demand and how it affects products In economics demand is the force that drives everything else in an economy It is 7
