We have learned that our economy is the way people make and

use their resources, goods and services.

People who make goods or provide services are called producers.  Producers have a supply of goods or services.  The supply is how much producers are willing to make and sell at a certain time for a certain price.

People who buy goods or services are called consumers.  Consumers demand goods and services when they buy.  The demand is the number of consumers willing to buy a product at a certain time for a certain price.

Supply and demand are closely connected.  They cause the prices to go up (increase) and down (decrease.)  When the supply is greater than the demand, prices go down.  When the demand is greater than the supply, prices go up.

When prices for goods or services are high, consumers will purchase fewer of those goods or services.   Producers however, will be motivated to make more products to sell when prices are high and they can get more money for them. 

Sometimes people can't get the goods or services they want because the supply is not available.  Then we say the product or service is scarce.  When scarcity occurs, the prices often go up (increase.) Then people must make decisions or choices. When this happens, they must often choose to buy less.
                                                                                                  

When the prices are low, consumers purchase more of those goods or services.  More people can afford to buy them.  Producers will then make fewer of these products to sell because they do not make much money from them, and the supply will decrease.

It's time for a quick review!

supply:   how much producers are willing to make and sell at a certain time for a certain price.  

demand:  the number of consumers willing to buy a product at a certain time for a certain price.

When prices are high consumers demand less of those goods or services, but producers want to make and supply more when prices are high.

When prices are low consumers demand more of those goods or services, but producers want to make and supply less of those products that are not making money.

Click on the dollar sign below to see an example of what happens when the price of a product causes the demand to decrease.