Lessons · Teaching · supply, demand and what sets a price
Price is where two pressures meet
Demand is how much buyers will buy at a price, and it usually rises as the price falls. Supply is how much sellers will offer, and it usually rises as the price rises. Price settles where the two match, and a change in either moves it.
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In beta. This lesson was written for Hone and has not yet been checked by a state certification officer. Practice material, not professional advice. What that means.
What it is for
This explains the price of a concert ticket, a strawberry in winter and a flooded toy market after a fad, and children can supply their own examples once they have it. It is also the piece of the subject with real arithmetic, which makes it checkable.
How to think about it
Change one thing at a time and reason to the new price. More buyers with supply unchanged pushes price up. More supply with demand unchanged pushes it down. Then look for the real example, because it is always nearby.
Worked example
Demand usually rises as price falls, because more people will buy at lessWhich is what a sale is for.
Supply usually rises as price rises, because more sellers find it worth doingWhich is why a shortage eventually ends.
Price settles where the amount offered matches the amount wantedAbove it, goods go unsold; below it, they run out.
Strawberries cost more in winter because supply is low and demand is notOne factor changed, and the price moved in the direction it predicts.
Your turn
Name what happens to price when demand rises and supply does not.
More buyers and the same supply pushes the price
Solve one, graded on the server
The trap
Changing both supply and demand at once and then predicting the price. If both move, the direction depends on which moved more, and the honest answer is that you cannot tell without knowing.