Supply and Demand: Economics
Part I: Supply and Demand
One of the most basic concepts of economics is Supply and Demand.
These are really two separate things,
but they are almost always talked
about together.
Supply is how much of something is
available. For example, if you have 9 luxury cars, then your supply of luxury
cars is 9. If you have 6 yachts, then your supply of yachts is 6.
Demand is how much of something people want. It sounds a little bit more difficult to measure, but it really is simple. To measure demand, we can use a very simple numbering system, just like the supply one. If 8 people want luxury cars, then we can say that the demand for luxury cars is 8. If 6 people want yachts, then we can say that the demand for yachts is 6.
Did you notice that the luxury cars supply was one more than its demand? Did you also notice that the yachts supply was equal to its demand? We'll get back to that in a moment.
Part II: Comparisons on Price
So we have supply, which is how much of something you have, and demand, which is how much of something people want. Put the two together, and you have supply and demand.
Now, how do you show the relationship between the two? One way is to use the price of something. Generally speaking, the price of something will go up if the demand goes up. Why? Because the seller thinks he or she can
get more money for whatever he or she is selling.
If more people want something, they will be willing to pay more for it. A good example is the newest Nike basketball shoes. Everybody wants them, and they will be willing to pay more than they normally would to get them. The demand goes up. Why? Because more people want them. The price also goes up. Why? Because the seller knows he or she can get more money for the product because it is in demand.
In the same way, the price will go down when the demand goes down. When the new style of basketball shoes comes out, everyone wants the new sneakers. The old runners don't seem so new anymore. The seller still wants to sell the older footwear, since he or she has a lot still in stock. So, the price goes down. Why? The seller hopes that people will be willing to buy the older shoes at a lower price. After all, the older ones aren't that much older or worse than the brand new ones.
What does all this mean? It means that you can track supply and demand by also tracking price. If something has a high price, you can usually conclude that the demand for that item is low. (This is not always the case; it is usually the case.) In the same way, if something has a low price, you can usually conclude that the demand for that item is high.
Why? First of all, a seller has already paid money for what he is trying to sell. An importer has paid $4 for each box of chocolate he has on his shelves. He has bought 1,000 boxes and paid $4,000. He is selling those same books for $8 each. He hopes to sell all of them at $8 each and get a total of $8,000.
But what if the demand is low and no one wants to buy them? The seller wants to make some of his money back, so he might lower the price. He is already out the $4,000. He can't change that. But he can change how money he is bringing in. If he lowers the price of the boxes to $4 each, he breaks even on each box but still takes in some of the money he had spent to buy the chocolates in the first place. And this bookseller would have had to lower the price of the boxes because the demand was low.
The reverse can also be true. If the bookseller decides that he wants to get as much money as he can back, then he might raise the price of the boxes to $10 each, figuring that he will sell fewer chocolates overall but will get more money for each box he sells.
What does it all mean? Supply and Demand are two very strong market concepts. Studying the two of them can give you a good idea of what people like to buy and sell. And you can track both supply and demand by comparing the price of an item over time.
To study Supply and Demand is to understand economics at its most basic.
Adapted from: http://www.socialstudiesforkids.com/articles/economics/supplyanddemand2.htm
II. Vocabulary & Definitions
the amount of products or services available in the market
EXAMPLE SENTENCE:
Supply how much of something is available.
the number of consumers who wish to buy particular goods or services
EXAMPLE SENTENCE:
Demand is how much of something people want.
fundamental; forming an essential foundation
EXAMPLE SENTENCE:
One of the most basic concepts of economics is Supply and Demand.
an abstract or general idea inferred or derived from specific instances
EXAMPLE SENTENCE:
One of the most basic concepts of economics is Supply and Demand.
standing apart; not attached to or supported by anything
EXAMPLE SENTENCE:
These are really two separate things, but they are almost always talked
about together.
obtainable or accessible and ready for use or service
EXAMPLE SENTENCE:
Supply is how much of something is
available.
something that is an indulgence rather than a necessity
EXAMPLE SENTENCE:
For example, if you have 9 luxury cars, then your supply of luxury
cars is 9.
determine the measurements of something or somebody, take measurements of
EXAMPLE SENTENCE:
It sounds a little bit more difficult to measure, but it really is simple.
the act of noticing or paying attention
EXAMPLE SENTENCE:
Did you notice that the luxury cars supply was one more than its demand?
having the same quantity, value, or measure as another
EXAMPLE SENTENCE:
Did you also notice that the yachts supply was equal to its demand?
to examine similarities and differences
EXAMPLE SENTENCE:
And you can track both supply and demand by comparing the price of an item over time.
a relation between people; (`relationship' is often used where `relation' would serve, as in `the relationship between inflation and unemployment', but the preferred usage of `relationship' is for human relations or states of relatedness)
EXAMPLE SENTENCE:
Now, how do you show the relationship between the two?
an artifact that has been created by someone or some process
EXAMPLE SENTENCE:
Because the seller knows he or she can get more money for the product because it is in demand.
how something is done or how it happens
EXAMPLE SENTENCE:
When the new style of basketball shoes comes out, everyone wants the new sneakers.
a supply of something available for future use
EXAMPLE SENTENCE:
The seller still wants to sell the older footwear, since he or she has a lot still in stock.
to follow something, typically in order to find it or its location at different points
EXAMPLE SENTENCE:
It means that you can track supply and demand by also tracking price.
a distinct part that can be specified separately in a group of things that could be enumerated on a list
EXAMPLE SENTENCE:
If something has a high price, you can usually conclude that the demand for that item is low.
change to the contrary; opposite
EXAMPLE SENTENCE:
The reverse can also be true.
move upwards
EXAMPLE SENTENCE:
If the bookseller decides that he wants to get as much money as he can back, then he might raise the price of the boxes to $10 each, figuring that he will sell fewer chocolates overall but will get more money for each box he sells.
including everything
EXAMPLE SENTENCE:
If the bookseller decides that he wants to get as much money as he can back, then he might raise the price of the boxes to $10 each, figuring that he will sell fewer chocolates overall but will get more money for each box he sells.
III. Exercise: Match the Definitions
Use: concept, equal, luxury, reverse & track
1. ________________: something that is an indulgence rather than a
necessity
2. ________________: change to the contrary; opposite
3. ________________: to follow something, typically in order to find it or its location at different points
4. ________________: an abstract or general idea inferred or derived
from specific instances
5. ________________: having the same quantity, value, or measure as
Another
IV. Exercise: Fill in the Gaps/Blanks
Use the following words: comparing, demand, overall, product, raise,
relationship, stock, style & supply
1. . When the new ____________ of basketball shoes comes out, everyone wants the new sneakers.
2. ___________________ is how much of something is available.
3. Because the seller knows he or she can get more money for the
______________ because it is in demand.
4. Now, how do you show the ______________________ between the two?
5. And you can track both supply and demand by _____________________ the price of an item over time.
6. _________________ is how much of something people want.
7. The seller still wants to sell the older footwear, since he or she has a lot still in _________________.
8. If the bookseller decides that he wants to get as much money as he can back, then he might ________________ the price of the boxes to $10 each, figuring that he will sell fewer chocolates ________________ but will get more money for each box he sells.
V. Exercise: Match the Picture
Use: importer, luxury products; sneaker/runner/trainer;
stock/inventory; & yacht
____________________________
___________________________
__________________________
__________________________________
_________________________________
VI. Listening: Supply & Demand
Supply and Demand
http://www.youtube.com/watch?v=1mo_D8qRjTU
(3:00)
ABC World News – Supply & Demand
http://www.veoh.com/watch/v17135972twzm52Db?h1=ABC+World+News+-+Supply+%26+Demand
(2:51)
VII. Just for Fun