Supply and Demand
"The first lesson of economics is scarcity: there is never enough of anything to fully satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics."
— Basic Economics (2000)
Core Concept
Supply and demand is not just a theory—it's a description of how millions of people coordinate their actions without anyone directing them.
Key Points
- When prices rise:
- Suppliers produce more.
- Consumers buy less.
- When prices fall:
- Suppliers produce less.
- Consumers buy more.
Real-World Applications
Housing Markets
- High rents signal:
- Housing shortage.
- Need for new construction.
- Areas of high demand.
- For a deeper dive, see Real-World Applications: Housing Markets.
Labor Markets
- High wages attract:
- More workers.
- Skills development.
- Industry growth.
- Explore more in Real-World Applications: Labor Markets.
Think It Through
Consider minimum wage laws:
- What happens to the supply of workers?
- Higher wages may increase the supply of workers willing to work.
- What happens to the demand for workers?
- Employers may hire fewer workers due to higher costs.
- Who benefits? Who loses?
- Benefits: Workers who keep their jobs at higher wages.
- Loses: Workers who may lose jobs or find fewer opportunities.
Further Exploration
- Price Controls: Investigate how government-imposed price ceilings and floors affect supply and demand dynamics.
- Elasticity: Understand how the elasticity of demand and supply influences market responses to price changes.
For more detailed examples and case studies, refer to the Real-World Applications section.