Supply and Demand in One Paragraph

The law of demand states that if a business lowers the price of something they are selling there will be more people interested in purchasing that product. If that same business raises the price of that same product then fewer consumers will be interested. The obvious example is gasoline at the pumps. The price skyrockets and fewer people drive, they buy small gas-efficient cars, they carpool, or take mass transportation. The price drops and it is time to take the SUV out of the garage. The law of demand is the core of economic theory and goes a long way to describe the behavior of consumers. More people will sit in the cheaper bleacher seats at a baseball game than in the more expensive box seats; therefore stadiums have a larger supply of the less expensive seats – which leads us into the law of supply. Supply characteristics relate to the behavior of firms in producing and selling a product or service. The higher the price of a good or service the more a business will profit and the more it will produce. Farmers are a good example. If the price of a commodity rises then the farmer will produce more. If the price lowers then less is produced. And this is where supply and demand come together, because ultimately an increase in supply must be met with an increase in demand in order for the price increases to be sustained. The farmer can only raise prices if the consumers are willing to pay more. Lower prices are the market’s signal to farmers that they have produced too much of something or that it is something consumers do not want. But at some point the consumers will stop purchasing as the price becomes too high. A good marketer learns to produce for the market. Since the very first farmer stood at the fence talking to his nextdoor neighbor and asked, “I would like to purchase that cow from you and I will give you five chickens and a rooster”, and the other farmer answered, “I will take ten chickens and two roosters,” and they bartered back and forth the laws of demand and supply have been allowed to proceed ALMOST unhindered. What could possibly hinder such a pure display of free markets? It is called nonprice rationing and it is when a government gets involved and seeks to prevent monetary prices from doing their job. Nonprice rationing is the topic for our next paragraph.