Supply and Demand Examples For Students
You have heard of the concept of supply and demand.
Let’s now look at some simple examples of this concept in action!
Suppose all the tickets for a football game have already been sold.
Perhaps some people have decided to make some money by buying a number of tickets and offering them for sale outside the stadium.
This is called scalping.
Scalpers know that there will be lots of people wanting to buy a ticket at the last minute and will be willing to pay more than the original ticket price.
So, the demand is high and the price goes up!
If everything has equilibrium (no change up or down of supply and demand) everyone is happy.
The grower is happy when he can sell all his tomatoes and doesn’t have to destroy what is left unsold.
And the buyers are happy that the price of tomatoes didn’t skyrocket. Equilibrium!
However, suppose there is a terrible frost the following year and half the tomato crop is lost. Now there will be little supply (shortage), and a greater demand – so the price will increase.
A mobile phone maker has come out with a brand new iPhone that does more than the previous iPhone.
The maker buys advertising on TV, magazines, bill boards for this new iPhone.
Young people decide that they just have to have this phone and they are willing to pay top dollar for it.
The maker recognizes he has created a demand that is greater than what he can supply, so he takes orders.
Now he is in the perfect position to increase the price of his iPhone because so many people want it.
Worn and Torn Jeans
A teenager in Japan thought wearing old, torn jeans would be a new fad. Friends began to want old and torn jeans too.
Soon, teens were trying to find ways to make their new jeans look worn and torn.
Someone in the US decided this would be a good money-making scheme and bought up every old, secondhand pair of jeans he could find, the more holes, the better.
He found a few stores in Japan to sell them for him.
Now, the demand was huge and the prices of these distressed jeans went higher and higher.
Equilibrium wouldn’t be found until the teens in Japan found another fad and that, of course, didn’t happen because the fad spread to countries all across the globe.
Have you noticed that the price of gasoline for vehicles goes up in the summer? This is because there are a lot more people driving in the summer.
The demand for gasoline is high. So the gasoline producers take advantage of the demand and increase the price.
The price of gasoline will drop in the winter because the demand decreases.
The same thing happens with the cost of heating homes. In the summer, people don’t have to use fuel to heat their homes so the cost of fuel goes down.
It will go up again in the winter when the demand for fuel increases.
1) Why do scalpers charge more than the ticket price for a ticket outside the stadium?
2) What happens to a tomato crop during a drought when the land can’t be irrigated?
3) Why does something new always cost more?
4) How does a fad affect the price of the goods being sold?
5) Why do we pay more for gasoline during summer months?
1) People who missed buying a ticket still want to see the game so they are willing to pay more.
2) During a drought, the crop will be very poor and this makes the demand higher and the price higher.
3) Manufacturers will make people want something by advertising it everywhere and this encourages people to buy. They are willing to pay more for the product because it is new on the market.
4) A fad spreads so that many people in one area all want the same thing, and this increases demand and increases the price of the thing everyone wants.
5) More people take trips and vacations in the summer and this increases the demand for gasoline and then the price of gasoline goes up.