Last post i talked about supply and demands as it reacts to the needs and wants of people but in this post I’m going to talk about the more technical side of supply and demand. Prices of items in the market will fluctuate until the demand is same as the supply creating a sort of “equilibrium” between the supply and demand chain.
As this chart shows when the demand is low and the supply is high that results in a surplus of goods and the price of the said item will drop like a dead bird but when there is a shortage, which happens when the supply is lower than the demand, the price will go up higher than Felix Baumgartner.
Why does this happen? Well, when there is less of something when people what that something some people are willing to pay a higher price for it so the price automatically goes up from sellers trying to profit from the people who are willing to pay more, but when there is too much of something and nobody wants it people sell it as cheap as possible to get rid of the extra stock taking up their storage space which can be used for storing other more profitable products.
Besanko & Braeutigam (2005) p.33.
“Marginal Utility and Demand”. Retrieved 3-12-2012.