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Finance Glossary

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Law Of Supply


This fundamental economic principle states that as prices rise, supply will increase (in part because people who make the stuff will be excited to sell whatever it is for more money). And as prices fall, supply will decrease (some suppliers will go out of business or choose to make something that is worth more). 


Ryan Gosling declares his love of pretzels and suddenly everyone wants to buy pretzels to be just as cool. The price of pretzels goes up until each one costs $6. A bunch of people who are sitting around wondering what to do with their lives suddenly say "I know! I'll start making pretzels! I can make a bunch of cash because fools are buying them for $6 each."

Maybe before the Ryan Gosling announcement, there were 100 million pretzels made in the U.S. each year. With the great Pretzel Craze, there's now 200 million pretzels being made because the price went up.

But then, Ryan Gosling announces he hates pretzels now. Prices drop to a more reasonable $3 per pretzel. Everyone with a pretzel Pinterest board and blog stops talking pretzels and some of those people making soft dough start making other stuff, instead. It's no fun making pretzels when you're making half as much money for them.

In the next year, the U.S. is back to making 100 million pretzels a year.