Grade 7 Lesson 2: #Demand and #Supply
Supply and demand are two of the most basic pillars of how an economy works.
Supply: Supply of a product is how much of the product is available for purchase. The fundamental law of supply says that as the price of a product increases, companies will build more of the product.
Demand: Demand of a product is the amount of product that people want to buy. The fundamental law of demand says that as the price of a product increases, the less of that product people will want to buy.
In a free market, the price of a product is determined by the amount of supply of the product and the demand for the product. Four basic laws describe how supply and demand influence the price of a product:
1) If the supply increases and demand stays the same, the price will go down.
2) If the supply decreases and demand stays the same, the price will go up.
3) If the supply stays the same and demand increases, the price will go up.
4) If the supply stays the same and demand decreases, the price will go down.
Supply and demand can change and any number of factors can change the supply or demand. For example, the demand for a football team's jerseys would go up if they won the Super Bowl. Also, the supply for those same jerseys may go down if the factory that made them burnt down.
Some things that can change demand:
• Income - If people have more money, the demand for products can increase.
• Population - As the population increases, there are more buyers. This will increase demand.
• Customer preference - Customers may no longer want a product, reducing the demand.
• Changes in competition - If the competitors of a product increase their price, then the demand for your product may increase.
Here are some things that can change supply:
• Number of sellers - If the number of sellers increases, then the supply will increase.
• Technology - Improvements in manufacturing can increase supply.
• Resources - If resources needed to build a product are moved to another product, then supply will decrease.
• Costs of manufacturing - If the costs for making a product increase, the supply will decrease
To summarize, supply and demand, underlines the relationship between the quantity of a commodity that producers wish to sell and the quantity that consumers wish to buy.
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