Supply and Demand

Understanding how supply, demand, and price interact in markets

WHAT IS SUPPLY AND DEMAND?

Supply and Demand is the fundamental economic model that explains how prices are determined in markets. It describes the relationship between the quantity of a good that producers are willing to sell (supply) and the quantity that consumers are willing to buy (demand).

📈 Supply

The amount of a good or service that producers are willing and able to sell at various prices. Generally, as price increases, supply increases (upward sloping curve).

📉 Demand

The amount of a good or service that consumers are willing and able to buy at various prices. Generally, as price increases, demand decreases (downward sloping curve).

⚖️ Equilibrium

The point where supply and demand curves intersect. At this price, the quantity supplied equals the quantity demanded. This is the market-clearing price.

🎮 SUPPLY & DEMAND GAME

Adjust the price to find the equilibrium point where supply and demand meet! You'll see supply and demand curves, and your goal is to set the price at the equilibrium.

MARKET SCENARIOS

Normal Market

Balanced supply and demand

Supply:50

Demand:50

Equilibrium Price:50

High Demand

Many buyers, limited supply

Supply:30

Demand:70

Equilibrium Price:50

High Supply

Many sellers, limited buyers

Supply:70

Demand:30

Equilibrium Price:50

Shortage

Demand exceeds supply

Supply:20

Demand:80

Equilibrium Price:50

Surplus

Supply exceeds demand

Supply:80

Demand:20

Equilibrium Price:50

HOW SUPPLY AND DEMAND WORK

Producers Set Supply

Producers decide how much to produce based on costs, technology, and expected prices. Higher prices typically encourage more production (supply increases).

Consumers Set Demand

Consumers decide how much to buy based on price, income, preferences, and alternatives. Higher prices typically reduce demand (demand decreases).

Market Finds Equilibrium

The market price adjusts until supply equals demand. At equilibrium, there's no surplus or shortage - the market clears.

Price Changes When Imbalanced

If demand > supply (shortage), prices rise. If supply > demand (surplus), prices fall. This continues until equilibrium is reached.

KEY PRINCIPLES

Law of Demand

As the price of a good increases, the quantity demanded decreases (all else equal). People buy less when prices are high.

Law of Supply

As the price of a good increases, the quantity supplied increases (all else equal). Producers make more when prices are high.

Market Equilibrium

The price at which quantity supplied equals quantity demanded. At this point, the market is in balance with no surplus or shortage.

Price Signals

Prices communicate information. High prices signal scarcity and encourage production. Low prices signal abundance and discourage production.

Surplus

When supply exceeds demand at a given price. Producers have excess inventory, leading to downward pressure on prices.

Shortage

When demand exceeds supply at a given price. Consumers compete for limited goods, leading to upward pressure on prices.

REAL-WORLD EXAMPLES

🏠 Housing Market

High Demand, Low Supply: When many people want to buy homes but few are available, prices rise. This is a shortage situation.

📱 New Technology

High Demand, Limited Supply: When a new iPhone launches, demand is high but supply is limited initially, causing high prices and long wait times.

🍎 Seasonal Produce

Supply Changes: Apples are cheaper in fall (high supply) and more expensive in spring (low supply). Demand stays relatively constant.

⛽ Gas Prices

Supply Shocks: When oil supply is disrupted, gas prices spike because demand remains high while supply drops suddenly.

🎮 Video Games

Price Drops Over Time: New games start expensive (high demand, limited supply). Over time, supply increases and demand decreases, so prices fall.

💎 Luxury Goods

Limited Supply Strategy: Luxury brands intentionally limit supply to maintain high prices and exclusivity, creating artificial scarcity.

🎮 SUPPLY & DEMAND ADVENTURE GAME

Navigate through supply and demand scenarios and make critical decisions! Learn about how prices are determined, the laws of supply and demand, equilibrium, shortages, surpluses, and how markets allocate resources.

MONEY:$1,000

Scenario 1 of 12

What is Supply and Demand?

You see prices changing in markets. A friend explains that supply and demand determine prices - the relationship between how much producers want to sell and how much consumers want to buy.

Do supply and demand determine prices in markets?

Press Y for YES or N for NO