Supply and Demand
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- I learned about something confusing in school today that I have to do a project on. I need to present on supply and demand, but what even is that?
- Sit down, honey. I've got this.
- Well, son, finance is--
- Ohhh, I've heard about scarcity before. That's when you don't have enough of something to give everyone what they want and need,
- Yes, exactly. Scarcity drives competition in a capitalist economy. This competition is the demand part. When demand is high, prices will usually rise since the interpreted value is higher. When demand is low, prices will fall to encourage customers to buy for cheaper.
- Supply and demand is how we, as humans, relate scarcity to capitalism.
- So, then, what happens when supply of a product changes?
- OMG! I get it now. Thanks, mom.
- I have no idea what they're talking about...
- When supply decreases, demand increases because scarcity increases. Therefore, prices rise. When supply increases, scarcity is less effective at convincing people to buy, So, the prices drop in order to attract more buyers.
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