Supply & Demand
Supply and demand affects almost everything you do. When you visit the mall to scoop up the newest fashions, snag a copy of the latest video game, or have your hair cut in the newest style, you tell stores what types of items and services you are willing to purchase. This is demand ... your ability and willingness to pay for a particular item or service.
The owners of stores are very interested in demand. They use information about what you buy (and how much) when they decide what to offer in their stores. They place orders from manufacturers by looking at what you have purchased in the past and what they think you will buy in the future. This is supply ... the amount of a good or service a seller offers for a particular price and a particular time.
Supply and demand work together in a market economy. For the economy to be successful, businesses need to sell what buyers want and shoppers must be willing to spend their money!
The laws of supply and demand can be a bit tricky if you look at the whole economy at once. So, let's focus on one product ... Real Trees.
To stay in business, Pete knows that he must pay for managing and running a tree farm. He must buy his seedlings from a nursery and be able to pay workers (including himself) to plant and cultivate the trees. He has to purchase or repair machinery necessary to cultivate his crop. He must purchase the supplies needed to keep the business running smoothly and advertise his trees! Finally, Pete must decide if he is going to sell his trees to a retailer or if he is going to allow consumers to come to the farm and choose their own tree.
Pete, and other Real Tree growers, must think of all of these factors and the costs that go with them when making decisions about what and how much to plant and harvest. Whew!
So, now we know the part both producers and consumers play in the laws of supply and demand. Now let's take a look at what happens when producers don't produce enough to meet the demand or when consumers don't buy enough to use up the supply. Remember, supply and demand work together. That means that a change in one causes a change in the other.
These changes in supply and demand happen all the time ... and not just for Real Trees. In fact, economists follow the buying and selling patterns of each of us. By looking at the patterns (sometimes called trends), they can make predictions about the future of the economy.
So, next time you go shopping, remember that each time you spend your hard-earned money; you are taking an active part in a market economy!