Supply and demand are important ideas that help us understand how markets work.
-
What is a Market?
- A market is a place where buyers and sellers come together to trade goods and services.
- For example, in 2022, the total amount of goods and services traded in the U.S. was about $5.9 trillion. That shows just how big markets can be!
-
What is Market Structure?
- The way a market is set up depends on how many sellers and buyers there are, what products are available, and how easy it is for new businesses to start selling.
- Some common types of market structures are: perfect competition, monopolistic competition, oligopoly, and monopoly.
-
How Supply and Demand Affect Prices:
- When there is a lot of demand for something and not enough supply, prices usually go up. This is called demand-pull inflation. For example, during the COVID-19 pandemic, the demand for electronics went up by 40%, and prices increased as a result.
- On the other hand, if there is a lot of supply but not enough demand, prices tend to go down. A good example is what happened in the oil market in early 2020, when prices fell by more than 60% because demand dropped.
In summary, supply and demand play a key role in how markets work and how prices are set.