You know when you read or hear a word so many times it starts to seem like something...alien? Well, that’s supply and demand for anyone who’s been anywhere near the field of economics.
Let’s break it down.
Supply is the goods (physical things you can buy) and services (not physical goods, but things you have others do to help you...think: marketing, hairdressers, financial advisers, etc.) that companies and people make. Demand is what goods and services people actually want to buy.
When supply and demand meet, it’s a beautiful thing: exactly the amount of stuff that was made was also bought, and that’s at a certain price that we call the “equilibrium.”
When there’s high demand and low supply, the price of the supply can go up. Because there’s not that much of the good/service and a lot of people want it, prices rise. Think of Uber on a Friday or Saturday night: lots of drunk people who want rides, and not as many Uber drivers to haul their drunken butts around as usual...so prices surge.
When there’s low demand and high supply, suppliers have a surplus. Too much stuff and not enough people to buy it—at least at the normal, equilibrium price.
So how to get people to buy it? Lower the price. Stores like TJ Maxx and Ross are a good example of this: the same stuff is sold to consumers there that it was elsewhere, but at a lower price, because it didn’t sell at the other stores from too much supply.
Supply and demand works the same in macroeconomics, but on a larger scale, which means larger consequences. A low supply of Ubers and a high demand from drunk people who are pissed at the high prices is nothing compared to a low supply of a staple food to an entire country (then the whole country is pissed at the lack of supply and/or higher prices on the little supply available). Likewise, having a surplus is a much bigger deal in macroeconomics.
It’s important to think about how things work internationally, too. For instance, the U.S. subsidizes their farmers. Why? If U.S. farmers were to compete with international farmers, they would quickly disappear from the market, because imported stuff is cheaper. So we subsidize farmers to artificially change the supply situation of food that farmers produce in the U.S., likely because we don’t want to be dependent on other countries for our food, even if it is cheaper.
Related or Semi-related Video
Econ: What are Determinants of Supply an...17 Views
And finance Allah Shmoop what are determinants of supply and
demand All right people we're going to follow the little
shonka that could you know shonka is those super warm
Russian hats with the ear flaps You have those things
Well the journey of this little yushenko will show us
all the ways demand curves and supply curve can shift
and how those shifts can affect the market So there's
this little Jew shonka that was made in a factory
in Siberia waiting to find it's forever head to Don
there that thing But the Russian currency the ruble took
a tumble and the economy took a tumble with it
When the ruble any economy took a tumble together Well
so did people's incomes Because so many Russians had a
change in income they were buying fewer hats Well this
change in income made the demand for Yushchenko's go down
which shifted the demand Kerr for Yushchenko's inward Well what
happened when the demand Kerr for you shank has shifted
inward Well you sh uncles are produced the supply Yeah
that thing and sold the demand at the price and
quantity where the two lines cross right there that little
dot thing well when the demand curve get shifted inward
it decreases both the price and the quantity for you
shank a market equilibrium which is bad for you Shonka
is trying Teo you know find there forever Heads if
you think that's bad While things would get even more
hopeless for the little you shonka Sorry we're just keeping
it real here These other hats foreign hats called Beanies
dropped in price in the Russian market when the economy
went down And since the price of a substitute half
rue Shankar's went down while the demand her for a
shank has shifted even further inward Eventually the economy bounced
back though And with it Russia was so overjoyed that
they had a baby boom Well this change in number
of buyers thanks to an increase in you know population
shifted the demand Kerr for you Shank is up that
way But not as much as our little lukashenka would
have expected Why Well young Russians had gotten used to
the Beanies Young Russians had a preference for Beanies over
Yushchenko's and then another unfortunate even occurred climate change Yes
Climate change made the Russian winters less miserably cold which
made Yushchenko's well less useful This change in usefulness of
Yushchenko's made the demand Kerr for Shankar's shift even further
Inwards down down down the demand for you Shankar's went
our poor little Lucia Anka Would it ever be sold
Our story wouldn't be complete without looking at what happened
to the supply curve Well guess what There used to
be a tariff on Yushchenko's sold outside of Siberia on
the one sold to the non Siberian parts of Russia
The Kremlin saw the demand curve for the iconic wish
Anca shift inward and decided to remove the shank A
tear of right dead weight loss gone Thanks to this
change in government policy the supply curve foryou Shankar's shifted
outward again that way Better yet you shank a factory
started making you Shankar Bo for rather than real fur
to appeal to the preferences of vegetarians and vegans and
Socialist which reduced overall production costs and for was in
short supply anyway all because of that whole global warming
thing and making it a whole lot more expensive and
hard to find Well this change in production costs shifted
this placard for Yushchenko's even further upward While that was
good for all the little of Shankar's friends it wasn't
necessarily good for it You know personally being a for
you Shonka we'll still It gave the little lukashenka hope
hope that was much needed after all those drops in
the demand curve To try to compete with the Beanies
you shank a factory invested in new technology which further
shifted you shank a supply curve outward basically more hat
making robots and fewer hat making people you know like
what happened with car production in soon McDonald's one winter
there was ah horrible winter storm in Russia Yes the
most horrible of all The storm tore off many roofs
including the shank a factory roof Our little Lou Shaka
almost blew away But well this geographic influence caused you
shonka supply curve to shift inward that way once the
storm passed people who didn't have Yushchenko's while they regretted
it you know regretted that they didn't have one resulting
in an increase in demand for you shank as a
symbol of Russian solidarity against the bitter cold At last
our little lukashenka the last reel for Yushchenko was sold
and found It's forever head The little Lou Shankar's forever
had belonged to a young cheery Siberian boy even though
that hat was too big a time The boy's father
said that if he kept his ooh shonka in good
condition he could use it until his head was big
enough And for decades afterwards well too bad A Siberian
monkey stole it off the boy's head just a minute
later Yeah well happens anyway just to some five things
that can cause a shift in demand Curves are changes
in income price substitutes number of buyers like population growing
or shrinking tastes and preferences for not for and usefulness
like a zit cold out or not And for things
that can shift the supply curve are changes in production
costs New technology Yes Hello Robot geographic influences in taxes
Stuff like that Like changes in government policy So remember
when the supply and demand curves shift It changes the
price and quantity where the two lines intersect changing the
equilibrium and also remember Teo you know watch out for
those Siberian monkeys Yeah they're part alien We think right
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