Teaching Cleveland

Lesson 49

SUPPLY and DEMAND

In a market economy, prices perform two important functions: They ration goods and services, and they motivate production. Since fewer people can afford to pay a higher price for an item than a lower price, goods and services can be allocated in accordance with their availability simply by raising or lowering prices. Similarly, higher prices attract producers to enter new markets, while lower prices discourage that entry.

DEMAND: Willingness to buy products and services in the marketplace at various prices at a given time and place.

SUPPLY: Willingness of producers to supply you with goods and services at varying prices.

SCARCITY: Condition created by excess of human wants over resources necessary to satisfy them.

CONSUMERS: Those who make use of products and services.

PRODUCERS: Those who make a product or supply a service to consumers. Producers want to make a profit.

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