Hi, I’m Melissa Shin, with Advisor.ca, and today we’re going to talk about supply and demand.
Supply and demand are two important concepts in economics.
But how do they affect your life?
Supply and demand govern what you pay for everything from bread to cars to stocks and bonds. Let’s start with supply.
Supply is how much of a good or service producers are willing to give to the market at a certain price.
The lower the price, the lower the quantity supplied.
Other factors that affect supply include how much it costs to produce a product, technology and even the weather. When supply conditions improve, the curve moves to the right: so for the same price as before, producers are willing to produce more. When conditions deteriorate, the curve moves to the left: so for the same price as before, producers are only willing to produce less.
Demand, on the other hand, is how much of a good or service people are willing to buy for a given price. You can see that the lower the price, the higher the quantity demanded.
Other factors that affect demand include how much spending money people have, and what’s popular or fashionable.
When demand conditions improve, the curve moves to the right: so for the same price as before, the quantity demanded increases.
When demand conditions deteriorate, the curve moves to the left: so for the same price as before, the quantity demanded decreases.
Now, let’s talk about price. The optimal price is what makes both buyers and sellers happy. It’s where the demand curve and the supply curve intersect.
If the price is too high, supply will be higher than demand.
Suppliers think, “We can make money!” and produce a lot; buyers think, “That’s too expensive” and don’t buy.
But, if the price is too low, demand will be higher than supply.
Suppliers think, “I can’t make money at that price!” and produce less; buyers think, “Sweet! A great deal,” products fly off the shelves and some buyers will be left disappointed.
So the next time something’s on sale, or the market’s out of your favourite juice, you’ll know why.
Thanks for joining us!