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Supply and Demand Facts

‘Supply’ is what you have to sell and ‘demand’ is how much someone is willing to pay for it.

Generally, if there are a lot of people who want what you have to sell, you can ask a higher price.

And the opposite is true; if not very many people want what you have to sell, you will have to lower your price in order to get rid of it.

supply demand exchange

Another way of thinking about it is to think of it like an auction; if more people want an item, they will compete for it and offer more so the price goes up.

If no one wants the item, the auctioneer will ask less and less for it until it sells or not sell it at all.

Let’s look at some more facts about supply and demand.

The Law of Equilibrium

This is like a teeter-totter. If one end goes up the other end goes down.

When neither of the ends moves up or down, this is called equilibrium.

In economics, equilibrium is when the price of a product equals the demand for it.

teeter totter

However, in actual fact, there is almost always some movement one way or another.

When the supply is great, the demand is less, and vice versa; when the supply is low, the demand goes higher.

Determining Supply

When a farmer or anyone is producing an item for sale, it is called a commodity.

plastic-industry

The farmer has to determine the total cost of producing the commodity, such as the cost of raw materials, the fuel, the labor, the storage costs, etc.

This cost tells the farmer the absolute lowest price he can sell the commodity and still make a profit.

If the cost of the raw materials goes up, he will have to charge more for his product.

farmer in field

If there are hundreds of farmers producing the same thing, this will affect the price of goods as there will be too much for sale, and the price will have to be decreased

Supply is also dependent on many things, some of which are:

  • Weather
  • Crop failures
  • Unavailable raw materials
  • What people want to buy
  • What people need to buy
  • how much people are willing to pay
US paper money
Cash

Determining Demand

In almost all cases, demand will go up when prices of a commodity go down and people will buy more of the commodity.

The demand for a commodity is affected by a number of factors:

  • The willingness of the purchaser to buy
  • The income of the purchaser
  • The price of similar goods on the market
  • The number of customers willing to buy

Quiz Time!

quiz-time

QUESTIONS

What do we mean by supply?

What do we mean by demand?

What is a commodity?

Name three things that affect supply.

Name three things that affect demand.

quiz activity for kids

ANSWERS

Supply is a product that someone has for sale.

Demand is the number of people wanting to buy what is for sale.

A commodity is a product that is for sale.

business-retail-shop

Three things that affect supply are crop failures, what people want, and how much they are willing to pay.

Three things that affect demand are the income of the purchaser, how willing someone is to buy, and the price of similar goods.

Money & Economics

pay and money

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