Supply and Demand – Why Prices Rise and Fall

Every time we buy something, from food to fuel, we see the laws of supply and demand in action. Understanding how these forces interact explains why prices rise, fall, or stabilise — and why markets behave the way they do.

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The Basics

Demand means how much of a product consumers want to buy at different prices.
Supply means how much producers are willing to sell at those prices.

• When prices fall, consumers buy more.

• When prices rise, producers are more willing to supply.

The point where the two meet is called market equilibrium — the price and quantity where supply equals demand.

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When Prices Change

Prices rarely stay at equilibrium for long.

• If demand rises (for example, due to a trend or shortage), prices increase until supply catches up.

• If supply rises (such as a bumper harvest or new technology), prices tend to fall.

• If demand falls (less interest or lower incomes), producers may cut prices to encourage sales.

These shifts constantly reshape markets, from housing and energy to concert tickets and video game consoles.

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Example: Fuel Prices

When oil supply falls because of production cuts or disruption, prices rise globally. When new sources or lower demand appear, prices drop. The same logic applies on a smaller scale to everyday goods — even coffee or avocados.

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Skills Highlight

• Understanding real-world data through graphs of supply and demand curves.

• Analysing market equilibrium and the effect of changes in supply or demand.

• Linking economic theory to current events and consumer behaviour.

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Why It Works in Teaching

Supply and demand gives students a clear way to connect theory with daily life. Whether it’s the cost of energy, food, or streaming subscriptions, they learn to think critically about why prices change and who gains or loses when they do.