Supply and demand, explained

Almost every price you pay comes from two forces. Demand is how much of something people want to buy at each price. Supply is how much sellers are willing to sell at each price.

Usually, when the price goes up, people want less (demand falls) and sellers want to sell more (supply rises). Where those two meet is the equilibrium price: the price where the amount people want to buy equals the amount for sale.

If the price is set too low, people want more than there is, and you get a shortage: sold-out shows, empty shelves, long lines. If it's set too high, there's more than people want, and you get a surplus: piles of unsold stuff and clearance sales.

The interesting part is what makes the curves shift:

• Demand rises when more people want something at every price: a product goes viral, incomes rise, or a substitute gets more expensive.
• Supply falls when something makes it harder or more expensive to produce: a war cuts off oil shipments, a factory shuts down, or the parts cost more because other buyers want them too.

When demand rises or supply falls, prices tend to go up. When supply rises or demand falls, prices tend to come down.

You can see this in the news almost every day. Fighting near a major shipping route cuts the supply of oil, so gas prices jump. AI companies buy up memory chips, so phone makers pay more and raise prices. A new competitor brings more supply, so prices fall.