How Prices Are Set - Learning About Supply and Demand?

Prices are just a game of supply and demand played out every time you walk into a store or check your phone for games.

Imagine you have ten shiny gold coins to spend on ice cream. If there is only one scoop of chocolate left (low supply) but five kids really want it (high demand), the price goes up because everyone is willing to pay more for that last treat. But if the shop makes twenty scoops and only one kid shows up, the seller might lower the price so you will buy it.

Think of supply as how much stuff there is and demand as how badly people want it. They tug on a rope until they meet at a fair price. If the seller has too many toys (high supply) but nobody wants them (low demand), the toy store puts them on sale to get rid of them. Conversely, if everyone wants the new video game console (high demand) but there are only a few in stock (low supply), the price shoots up because people compete to be the first to grab it.

Prices change constantly because supply and demand are always moving. Imagine your favorite crayons. If they run out of red ones (supply drops) but everyone wants to color their drawings (demand stays high), you might have to trade two blue crayons for one red one. When the factory makes more red crayons, the price goes back down because there is enough for everyone without trading as much.

So, whenever you see a tag with a number on it, remember: that number is just the answer to how many people want something compared to how many of them are available.