You know when you read or hear a word so many times it starts to seem like something...alien? Well, that’s supply and demand for anyone who’s been anywhere near the field of economics.
Let’s break it down.
Supply is the goods (physical things you can buy) and services (not physical goods, but things you have others do to help you...think: marketing, hairdressers, financial advisers, etc.) that companies and people make. Demand is what goods and services people actually want to buy.
When supply and demand meet, it’s a beautiful thing: exactly the amount of stuff that was made was also bought, and that’s at a certain price that we call the “equilibrium.”
When there’s high demand and low supply, the price of the supply can go up. Because there’s not that much of the good/service and a lot of people want it, prices rise. Think of Uber on a Friday or Saturday night: lots of drunk people who want rides, and not as many Uber drivers to haul their drunken butts around as usual...so prices surge.
When there’s low demand and high supply, suppliers have a surplus. Too much stuff and not enough people to buy it—at least at the normal, equilibrium price.
So how to get people to buy it? Lower the price. Stores like TJ Maxx and Ross are a good example of this: the same stuff is sold to consumers there that it was elsewhere, but at a lower price, because it didn’t sell at the other stores from too much supply.
Supply and demand works the same in macroeconomics, but on a larger scale, which means larger consequences. A low supply of Ubers and a high demand from drunk people who are pissed at the high prices is nothing compared to a low supply of a staple food to an entire country (then the whole country is pissed at the lack of supply and/or higher prices on the little supply available). Likewise, having a surplus is a much bigger deal in macroeconomics.
It’s important to think about how things work internationally, too. For instance, the U.S. subsidizes their farmers. Why? If U.S. farmers were to compete with international farmers, they would quickly disappear from the market, because imported stuff is cheaper. So we subsidize farmers to artificially change the supply situation of food that farmers produce in the U.S., likely because we don’t want to be dependent on other countries for our food, even if it is cheaper.
Related or Semi-related Video
Finance: What are Macroeconomics v. Micr...3 Views
And finance Allah shmoop What Our macro economics versus micro
economics Alright people Hedgehogs bumble bees raindrops dust bunnies Bedbugs
Bacteria protons corks you know Small micro the Empire State
Building the pyramids the Great Wall The you the continent
of Asia the Earth the solar system the galaxy the
universe the multiverse A You know big macro Well that's
the basic difference At least a frame of it between
macroeconomics and microeconomics Big versus small macro economics deals with
economic principles on a large scale National unemployment rates international
trade Central bank interest rate decisions tariffs on foreign made
fuzzy bunny slippers Like those things I have a pair
micro economics Yet it deals with topics closer to home
It's about individuals Home mortgages car payments life insurance retirement
accounts of individuals mostly the retail price of fuzzy bunny
slippers Right It's also about individual firms like payrolls insurance
figuring out how many bunny slippers Teo make before Christmas
But the economy has been slow GDP only edged up
zero point one percent last quarter and unemployment rates have
ticked up to their highest level in three years The
Federal Reserve is worried and his considering lowering interest rates
Yeah those air concerns of macro economics Bunny slippers cost
twenty five bucks Regular slippers Cost Fifteen bucks Your daughter
wants the bunny slippers for Christmas but it's been a
rough year you know because the weak economy you've got
laid off a quarry Meanwhile your side gig tuning electric
bassoons has been slow Can you afford the extra ten
bucks for the bunny slippers over Just the normal rectangular
ones right Well that's a question of micro economics for
the bunny slipper firm While they might see that the
economy has been slow there are news reports about Cory
layoffs and the cratering electric bassoon market Earlier in the
year they bought a large supply of bunny slippers from
their Chinese manufacturing partner They don't sell enough of them
Well they'LL get stuck with a bunch of bunny slipper
inventory they can't get rid of should they drop the
price of the slippers like cut prices down to twenty
bucks from twenty five make sure they get rid of
most of the inventory by Christmas We'Ll those air questions
of micro economics as well Both types deal with the
same basic components though the difference has to do with
scale Both macro and micro economics deal with the function
of markets For instance the island nation of Macro vain
eah sees a decline in GDP In a panicked attempt
to fix the problem the central bank floods a country
with its currency macro dollars Inflation suddenly spikes All right
that's a macro economic issue Because inflation has jumped food
gets more expensive The all you can eat half ear's
delight meal at the buffet used to be nineteen ninety
nine But after the spiking inflation while now the price
rises to twenty nine ninety nine almost overnight you and
your family now have to decide well how many times
can we afford that meal per week You used to
do it four times Well now you'LL have to cut
down to twice a week and eat homegrown turn ups
the other two nights Yeah that's a micro problem Another
example Both micro and macro economics deal with supply and
demand Macro Vania discovers a small island inside its territorial
waters It turns out to have a large guano supply
on it's guano is the droppings of bats or seabirds
Finding an island full of it probably doesn't seem like
a big deal but it can be used as you
know fertilizer Mohr Aggregate supply of guano means prices for
fertiliser in the country fall right More supply same demand
Prices fall Also macro Vania is able to export toe
other countries helping its balance of trade and allowing it
to bring in more imports That's macro You can use
that cheap fertilizer to grow more Turn up You sell
them on the side Teo Get a little extra cash
Now you can afford one more night of Jeffers Delight
each week That's micro Well Micro economics doesn't just impact
households It operates on the scale of businesses as well
the guano trading firms that scrape it off the small
island and ship it overseas That's micro the small grocery
store that buys your excess turn ups Yeah that's micro
too OK so quick and very dirty Review Macro economics
It's the big stuff The national economy global trade interstellar
currency exchange total aggregate demand and supply as it relates
to inflation gross domestic product national income interest rates unemployment
and all kinds of changes price levels and liquidity That's
macro So then we have Micro Micro is all about
the individual of firm or corporation either smaller big business
or families and individuals And by the way those recording
devices the government has implanted in your brain Yeah you
hope those air microchips and definitely not macro chips That's 00:04:43.842 --> [endTime] not going to feel good in the morning
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