If you’re like me, then you’ve probably noticed that some people seem to be really good at explaining difficult concepts. Maybe your parents or a teacher were able to explain supply and demand in such a way that made it easy for you to understand. This can be frustrating when we try and do the same thing with our kids. In this blog post, I’m going to give my best explanation of supply and demand so your children will have a better understanding of how markets work! Supply and demand are two concepts that are not easily understood by children. This article will attempt to explain the basics of supply and demand in a way that is understandable to children.
5 Reasons Your Child Needs to Understand Supply and Demand
It helps them understand inflation and deflation as it relates to the price of things.
Knowing how supply and demand influence prices can help your child shop for bargains more effectively.
Supply and demand is a basic economic concept that children will need to know in order to understand higher level economic concepts such as gross domestic product, unemployment rates and interest rates.
Children who understand economics are better able to make informed decisions regarding their own finances as they grow into adults because the concept of supply and demand allows them to think logically about their spending habits or potential earning power if they want/need a job during childhood or adolescence.
Understanding economic concepts such as and demand prepares your child for thinking about the national economy in future years.
Where to start
The first thing needed to understand supply and demand is an item for sale. Let’s pick apples as our example item, mainly because everyone likes apples. Apples for sale at the market could be represented on a graph like this:
Now, let’s say one day there was a shortage of apples at the market. This would cause the price of apples to go up because everyone wants them but can’t get any because they are all out. So how much do you think the price went up? We could look at this graph to figure it out, looking at where the orange line was before and the blue line after, we see that apples went up in price by about $0.40.
Now let’s say one day there was a surplus of apples at the market. This would cause the price of apples to go down because everyone has plenty of them so they aren’t in high demand anymore. So how much do you think this would drop the price? We could look at this graph to figure it out, looking at where the orange line was before and the green line after, we see that apples dropped in price by about $0.30.
Supply goes up when there is more available for purchase; supply decreases when something makes it hard or impossible to get more (i.e. shortage).
Demand goes up when something becomes more popular, desirable, etc.; demand decreases when something becomes unpopular or undesirable (i.e. surplus).
Now that you have a basic understanding of supply and demand, You should find some graphs on the internet that show how supply and demand change over time for a specific item. Try to figure out what caused the change in supply or demand. If there is a counterfeit version of your product, does this affect the number of people who need it?
Another way of demonstrating supply and demand is through monopoly. You can have one person be the “buyer” who starts with $10 to purchase as many goods as they want, provided that the buyer has enough money to buy each item. The other player is the “seller” and starts with $20 to purchase items from the player who is acting as the “buyer.” Once all of an item has been purchased it cannot be purchased again until all of that same item has been purchased.
Here are some terms you may hear when discussing supply and demand
Supply decreases when something makes producing more of a good/service harder or impossible (i.e., scarcity).
Demand increases when something becomes more popular or desirable (i.., value).
Now you try! What caused the change in supply and demand on this graph? How would this affect supply and demand for apples? The change from supply being low and demand being high to both being low occurred when all of the factories closed down completely as they were not able to produce any more product due to power outages after a large storm came through where they
How about finding an article from either from the news or from a magazine online that talks about how supply and/or demand is affecting our daily lives? For example: “Due to low inventory levels, supply is not meeting demand and thus causing prices to increase.”
5 Terms Related to Supply and Demand Your Child Should Understand
Shortage – a lack of something, usually caused by an increase in demand
Surplus- too much of something, usually caused by a decrease in demand
Price gouging- when a business raises its prices to take advantage of a shortage
Supply and Demand graph- a line plot that shows how much is being supplied at any given price and how much is being demanded at any given price over time
Value- the amount someone is willing to pay for something
More Examples of Supply and Demand
Another way of an everyday example of supply and demand (not involving the purchase of goods):
Let’s say I am selling tickets to a carnival. The ticket booth opens at 10am and closes at 6pm, but I only have 30 tickets available for sale. If I want to sell out all my tickets, when would they need to be sold? We can look at this graph to figure it out, looking at where the orange line was before and the blue line after, we see that by 10:10am all 30 tickets are gone!
But what if there were more than 50 people who wanted to buy my tickets? If there were only 30 tickets available for sale how much could each ticket cost? Again using our graph, we can see that since no one is willing to buy tickets at such a high price, the price of each ticket would be $0. It wouldn’t make sense for me to sell them if no one is willing to buy them for that price!
How to Explain Supply and Demand to a Younger Child
To a younger child you can explain the supply and demand concept like this:
Supply is how much of something there is.
Demand is when you want to buy something because it’s fun or interesting.
When the amount of something goes down, people want it more so sometimes it costs more money.
When there is a lot of something (i.e., water in a swimming pool) no one wants it and the price drops.
Now that your child understands what supply and demand are, try explaining an everyday example to them like this: “Just think about how much candy stores charge for candy bars at Halloween; they charge more on October 31st than any other day because there’s less available (supply decreases) and people want them more (demand increases).”
The relationship between supply and demand is like the ying-yang symbol: they are opposites but also dependent on one another. Understanding these concepts can help us create solutions that might not have been possible before; it’s interesting to think about how our everyday lives are influenced by these two concepts.
Thank you for reading this article! Hope you had fun learning about supply and demand like I did making this post!