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Economics 101: Supply and Demand


I am sure you have heard of the terms supply and demand. The concept is in every economics textbook and central to every business model. In simple terms, supply is the quantity of available resources and demand is the desire for those resources. The theory of supply and demand states that with limited supply and high demand, the price of a good increases and when there is limited demand and high supply, the price of that good decreases. For example, a shoe company decides to sell their shoes for $100, but no one was buying their shoes. The company wanted to generate sales and change the price of their shoes to $85. As soon as the shoe company lowered the price of the shoes, there was an increase in demand for the company’s shoes and sales skyrocketed. This is an example of supply and demand. This fundamental principle is the foundation for a market economy. We will be discussing this concept in many future posts.

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