Economics · Lesson e02

Supply, Demand & Why Prices Move

Why do strawberries cost more in winter, and concert tickets sell out at any price? Two forces explain almost every price on Earth.
A busy market stall with a seller offering a basket of strawberries to eager customers

In the last lesson you saw that scarce things cost more. Now we'll turn that into the most famous idea in all of economics: supply and demand. Every price — for a saddle, a smoothie, a plane ticket, a rare pony — is set by a tug-of-war between how much people want a thing and how much of it is available. Learn to see both sides and you can explain, and even predict, why prices rise and fall.

💡 Big idea 1 — Demand (the buyers' side)

Demand is how much of something people are willing to buy. The key pattern: when the price goes up, demand usually goes down — fewer people will buy an €80 bridle than a €20 one. Demand also rises when something becomes more popular or wanted.

💡 Big idea 2 — Supply (the sellers' side)

Supply is how much of something sellers offer for sale. The key pattern: when the price goes up, supply usually goes up — sellers happily make more of something when they can charge more for it. Supply also falls when it's hard to produce (a bad strawberry harvest, a factory closing).

The tug-of-war sets the price. The price tends to settle where the amount buyers want to buy equals the amount sellers want to sell — the balance point.
Price Quantity Demand Supply balance price
Demand slopes down, supply slopes up — the price settles where the two lines cross.
Maths connection: think of demand and supply as two lines on a graph — demand sloping down (higher price, fewer buyers), supply sloping up (higher price, more sellers). The price settles where the two lines cross. Finding where two lines meet is exactly the graph-and-slope thinking from Lessons 17–18 — economists just gave those lines names.
Worked Examples
Worked Example 1 — a bad harvest (supply falls)

A late frost in Spain destroys half the strawberry crop. What happens to the price of strawberries, and why?

Supply side: there are now far fewer strawberries for sale — supply has fallen.

Result: the same number of shoppers are chasing fewer strawberries — a shortage — so sellers can charge more. The price rises. (This is why out-of-season fruit is expensive: low supply.)

Worked Example 2 — a sold-out concert (demand high, supply fixed)

A stadium holds 20 000 seats, but 90 000 people want to see the show. Why do tickets end up so expensive?

Supply side: fixed — only 20 000 seats exist, no matter what.

Demand side: huge — 90 000 want in. With demand far above supply, people compete and bid the price up until only 20 000 are still willing to pay. High demand + fixed supply = high price.

Warm-Up
  1. Problem 1
    For each, say whether it mainly changes demand or supply: (a) a new film makes horse-riding suddenly trendy, (b) a drought kills half the hay crop, (c) a factory doubles how many riding helmets it makes, (d) everyone's pocket money is cut in half.
    demand or supply for each →
  2. Problem 2
    In one sentence each: (a) what usually happens to demand when a price rises? (b) what usually happens to supply when a price rises?
    the two patterns →
  3. Problem 3
    A shop has 100 water bottles but only 30 people want one today. Is this a shortage or a surplus? Which way will the price be pushed?
    compare wanted vs available → price up or down? →
Core Problems
  1. Problem 4
    At a market stall, Mia records how many bags of carrots people want to buy at each price:
    Price per bagBags wanted (demand)
    €150
    €240
    €330
    €420
    (a) As the price rises, what happens to how many people want carrots? (b) By how many bags does demand fall for each €1 rise? (c) If the stall only brought 30 bags to sell, at which price would supply and demand match?
    read the pattern → find the constant drop → match to 30 →
  2. Problem 5
    A rare breed of pony has only 12 foals born this year, but 200 families want one. Use supply and demand to explain why these ponies sell for a very high price. What would happen to the price if the breed suddenly became common?
    demand vs supply → price → then more supply →
  3. Problem 6
    A toy company makes fidget spinners. Last year they were a craze and sold for €10. This year everyone's bored of them, and the shops are still full of last year's stock. Predict what happens to the price, and explain using both demand and supply.
    demand fell + supply high → price? →
  4. Problem 7 Challenge
    At a horse show, a snack stall finds that at €5 a burger, 60 people want one but they only cooked 20 (a shortage). At €9 a burger, only 20 people still want one — exactly the 20 they cooked. (a) What happened to demand as the price rose from €5 to €9? (b) Why is €9 the "balance price" here? (c) If they raise it to €12, they'd have burgers left unsold — what is that called, and what should they do with the price?
    demand change → why 9 balances → surplus → adjust →
  5. Problem 8 Open
    You're running a lemonade stand at a summer market. Decide a price to charge, then explain: how would you know if your price is too high (surplus — lemonade left over) or too low (shortage — you sell out in ten minutes and could have charged more)? What would you change the next day in each case? There's no single right answer — reason it out.
    your price + how you'd read the signals →
Think like an economist 🧠 — A price isn't just a number a shop picks — it's a message. A high price shouts "this is scarce or wanted; make more!" A falling price whispers "there's too much of this; make less." Prices quietly tell millions of strangers what to produce, without anyone being in charge.
Show answers
Problem 1
(a) demand (more people want it) · (b) supply (less hay produced) · (c) supply (more helmets made) · (d) demand (people can afford less).
Problem 2
(a) Demand usually falls as price rises (fewer people willing to buy). (b) Supply usually rises as price rises (sellers offer more when they can charge more).
Problem 3
Surplus (100 available, only 30 wanted). The price will be pushed down to clear the extra stock.
Problem 4
(a) Demand falls as price rises. (b) 10 bags fewer for each €1 rise. (c) At €3, demand = 30 bags, which matches the 30 supplied — so €3 is the balance price.
Problem 5
Very low supply (12) with very high demand (200) means a big shortage, so buyers bid the price up. If the breed became common (high supply), the shortage would vanish and the price would fall sharply.
Problem 6
Price falls. Demand dropped (people are bored) while supply is high (shops still full) — a surplus — so sellers must cut the price to sell the leftover stock.
Problem 7
(a) Demand fell from 60 to 20 as the price rose. (b) At €9, the 20 burgers wanted exactly equal the 20 cooked — no shortage, no surplus, so the price is stable (balance). (c) At €12 they'd have unsold burgers — a surplus — so they should lower the price back toward €9.
Problem 8
Open. Look for: a chosen price, plus recognising that leftover lemonade = price too high (lower it next day), and selling out almost instantly = price too low / could have made more (raise price or make more next day).
Next up → e03: Money, Barter & Trade Prices are measured in money — but money is a surprisingly clever invention. Next we'll ask what people did before money existed, why swapping a chicken for a haircut was such a headache, and how trade lets everyone end up better off.
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