(4) Supply and Demand

Imagine a football match, where each ticket normally costs £50. What will happen if there are only 1000 tickets available but there are 50,000 people who want to see the match? The tickets will become much more expensive because there are some people around who have enough money and want the tickets so badly that they are prepared to pay any amount of money for them. In this case there was a supply of 1000 tickets (small supply) and a demand for 50,000 tickets. When demand is higher than supply, prices increase.

When Accrington Stanley plays, not so many people want to see the match. Perhaps there are 5000 tickets, and 5000 fans want to buy one. These tickets will be sold at the ordinary price.

In winter it can be very cold in Spain. Not many people want to go there for their holidays at that time of the year. Many hotels are entirely empty. There is an enormous supply of hotel rooms. Very few people want these hotel rooms, i.e. the demand is very low. In order to induce at least some people to come and occupy these rooms, the hotel owners in Spain reduce their prices. It is better for them to get very little money than to get no money at all. Therefore when the supply is great and the demand is low, prices go down. That is called the law of the market.

When schools close for their summer occasion, many families want to go on holidays at the same time. They cannot go at any other time because children must not miss their lessons. The demand for hotel rooms (and flights etc) is very high. The supply is as normal. The demand is much higher than the supply. The hotel owners put up their prices to make up for the losses they have suffered in winter. This is their only chance to earn good money. They know that your parents are prepared to pay much more money than normal because they cannot take you on holidays at any other time of the year. Therefore the prices go up.

In general terms: When supply is greater than demand, prices go down. When supply is lower than demand, prices go up.

One lesson to learn from this: Buy when things are cheap. Fruits are cheapest when they are in season (when there are plentiful). Train tickets are cheaper at times when few people want to travel. They are expensive at bank holidays when everybody travels. If you buy clothes which are in fashion, i.e. when everybody wants them, they are more expensive. If you buy them when they go out of fashion, they will still keep you warm, but they are much less expensive. If you do the opposite of what everybody else does, sometimes you can get things much more cheaply. If you buy what nobody else wants, you pay a lower price. You can save money and put it into your golden savings book and start becoming a very rich person. -- "Reduce to clear" shelf in supermarkets (near sell-by date)

 

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(28 Jan 2008)

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