Supply and Demand

Supply and Demand — page 3 — 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

Supply and Demand — page 4 — 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

Supply and Demand — page 5 — Customers often line up outside Apple stores so that they can be among the first to get the latest version of the iPhone or other new products a measure of how many products or services are bought at what prices during a certain period of time It is also how a measure of how much a consumer wants a product or service Demand is only limited by how much the consumer can and is willing to pay for something Consumers choices about buying or not buying a product or service make economic economic growth and expansion possible If no one wanted anything anything there wouldn’t be any use in making things to sell to them Fortunately for the economy people are hardly ever satisfied with what they have and most consumers want more and more 8

Supply and Demand — page 6 — We Demand It THE DETERMINANTS OF DEMAND Demand isn’t as simple as people wanting things There are five reasons why they might want something something and each reason affects demand in a different different way These reasons are called determinants When farmers have an excellent crop of oranges there may be more than people actually want to buy They may have to sell the fruit for a lower price The first determinant is price what it costs to buy a product or a service This is the most important determinant determinant of demand If something something costs a lot of money there isn’t going to be as high of a demand for it Some people people might find a way to buy something expensive but others others will not buy it because they can’t afford it or prefer to use their money for something else The second determinant is the price of related goods and services that are purchased along with the original item or that are substitutes for it For example gas is a related good 9

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