Prices Bring the Choices of Buyers and Sellers into Balance
Market prices will influence the choices of both buyers and sellers. When a rise in the price of a good makes it more expensive for buyers to purchase it, they will normally choose to buy fewer units. Thus, there is a negative relationship between the price of a good or service and the quantity demanded. (People buy less stuff when it is expensive.) This is known as the law of demand.
For sellers, the rise in the price of that product brings extra revenue that makes them willing to supply more of it. Thus, there is a positive relationship between the price of a good and the quantity producers will supply. (People will sell more stuff when the price is high.). This … is known as the law of supply.
- When things are on sale, do you typically buy more of them, or less of them? Why?
- We are all producers, if only of labor. Think about some area where you get to decide how much you produce (baby-sitting, lawn mowing, or maybe selling things at a garage sale). If someone offers you a higher price to do the same kind of work, are you likely to do it more (say the babysitting rate doubles, all other things being equal)? Why?
This reading is an excerpt from Certell’s Common Sense Economics eBook. Certell offers curriculum materials and eBooks free of charge for students and teachers. Click Here to download the Common Sense Economics Materials.
Tab, Cagle Cartoons. 14, March 2005, Supply and Demand [Digital image]. Retrieved from <cagelcartoon.com>.