Economics is the study of how people make choices to get what they want. One of the most basic parts of economics is called supply and demand.
Supply is how much of something is available. For example, if you have 9 pencils, then your supply of pencils is 9. Or if you have 6 apples, then your supply of apples is 6.
Demand, on the other hand, is how popular something is or how many people want an item. For example, every day around noon, there is a higher demand for food than there is around 3:00. Also, there is normally a higher demand for pencils and notebooks in August, when school begins, than there is in June, during summer vacation.
Comparing supply and demand will help you better understand why some items cost more than others or change in price over time.
Typically, the price of something will go up if the demand goes up. Why? Because the seller knows that people are more likely to buy a popular item. For example, there is a high demand for coats in the wintertime, so the price for coats will usually increase.
The opposite is also true. If there is a low demand for an item, a seller might have to decrease the price, otherwise the items they are trying to sell may not sell quickly. Trying to sell a coat during summer would be difficult, so prices go down.
Another example occurs when there is a low supply of something. A low supply typically causes its price to go up because the seller does not have to sell very many. However, if there is a large supply, the seller may have to lower the price to get all his goods sold.
Free Supply and Demand eLearning Videos for Kids
