Lesson 6 - Supply and Demand Basics
Prices don’t appear out of nowhere. They’re shaped by two forces that run every market: supply and demand. Once you get these basics, the whole economy starts to make more sense.
What supply and demand mean
Demand is how much people want something at a given price. Supply is how much sellers are willing to offer at a given price. Prices rise when demand is strong and supply is low. Prices fall when supply is high and demand is weak. It’s that simple.
This chart shows how the demand curve slopes down (people buy less at higher prices) and the supply curve slopes up (sellers make more at higher prices). The intersection is the market price.
Mini story: How a sneaker drop showed demand in action
Jay, a 17-year-old sneaker fan, waited online for a limited sneaker release. The brand made only 500 pairs worldwide. Thousands of buyers tried to get them at once. They sold out in two minutes at €200 each. Within hours, resellers listed them for €800. Nothing about the shoes changed - only the price. Why? Because supply stayed fixed while demand exploded. People were willing to pay four times more just to get a pair. This taught Jay that prices aren’t random. They reflect how badly people want something and how many are available.
Shifts in supply and demand
The curves can move. If demand increases (like when something gets trendy), the demand curve shifts right, pushing the price up. If supply increases (like when technology makes production cheaper), the supply curve shifts right, pushing the price down.
Summary
- Demand is how much people want something at each price
- Supply is how much sellers offer at each price
- Prices move based on shifts in supply and demand
Key Terms
Further Learning
Track Progress
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