Supply & Demand
How prices are determined in markets
How Prices Are Set
Supply is how much of something sellers have available. Demand is how much buyers want to buy. When demand is high and supply is low, prices go up. When supply is high and demand is low, prices go down. This is the law of supply and demand.
Example
Supply and Demand in Action
Example: Umbrellas in a rainstorm
• Sunny day: few people want umbrellas (low demand) → low price
• Rainy day: everyone wants one (high demand) → price goes up!
Example: Tomatoes
• Harvest time: many tomatoes (high supply) → cheap
• Drought: few tomatoes (low supply) → expensive
Price moves to balance supply and demand.
Note
Remember
Prices are like signals — high prices tell producers to make more, and tell consumers to buy less. Low prices tell producers to make less and consumers to buy more. In SA, fuel prices change based on international oil supply and the Rand exchange rate.
Key Vocabulary
SupplyThe amount of a product available for sale
DemandHow much of a product people want to buy
ScarcityWhen there is not enough of something to meet demand
EquilibriumThe price where supply equals demand
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