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Supply and demand
How buyers and sellers set prices, and what happens to price when supply or demand shifts.
Read
Demand is how much people want to buy at each price. When the price goes up, people buy less. That's the law of demand. Supply is how much sellers are willing to sell at each price. When the price goes up, sellers want to sell more.
The equilibrium price is where the two meet: the amount buyers want equals the amount sellers offer. If the price is below that, there's a shortage, like a sneaker drop that sells out in seconds. If it's above that, there's a surplus, like winter coats on clearance in March.
When something other than price changes, a whole curve shifts. A viral video can raise demand. A bad harvest can cut supply. Then the equilibrium price and quantity change.
Words to know
Write what each word means in your own words.
- Demand
- Supply
- Equilibrium price
- Shortage
- Surplus
Questions
- At $20, students want to buy 300 tickets to a game, but the stadium has only 200 seats. Is this a shortage or a surplus? What will likely happen to the price?
- For each event, say whether supply or demand shifts, which way, and what happens to the price.
Event Supply or demand? Increase or decrease? Price up or down? A celebrity is seen wearing a brand's hoodie A frost destroys much of Florida's orange crop A new factory makes phone chargers much cheaper to produce Gas prices rise, so fewer people want big SUVs - A store prices a game console far above the equilibrium price. What happens?
- A shortage
- A surplus of consoles sitting unsold
- Nothing changes
- Demand increases
- Concert ticket prices jump when a big tour is announced. Explain why using supply and demand.
- Play thedime.news/resources/merch/. What price earned the most profit in week 1? Why wasn't the highest price the best?
Answer key: Supply and demand
Words to know
- Demand: How much of something people want to buy at each price. When the price goes up, people usually buy less.
- Supply: How much of something sellers are willing to sell at each price. When the price goes up, sellers usually offer more.
- Equilibrium price: The price where the amount people want to buy equals the amount sellers want to sell.
- Shortage: When people want to buy more of something than sellers have, usually because the price is too low.
- Surplus: When sellers have more of something than people want to buy, usually because the price is too high.
Questions
- A shortage of 100 tickets. The price will likely rise (for example, resale prices go up).
- Hoodie: demand increases, price up. Oranges: supply decreases, price up. Chargers: supply increases, price down. SUVs: demand decreases, price down.
- B. At a price above equilibrium, sellers offer more than buyers want, so a surplus builds up.
- Demand for tickets rises sharply while the number of seats (supply) is fixed, so the price rises.
- Answers will vary by game. Look for the idea that a higher price means fewer buyers, so the best price balances price per item against how many sell.
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