How is a price determined for a good or
service? The supply and demand for this
product determines its price. A good example of
how this works is the collectiblesmarket.
Collectibles can be anything—baseball
cards, sportsmemorabilia, comic books, or
Beanie Babies—that people collect. Some
people collect and save items hoping the
product’s value will increase. Over time, many
copies of these itemsmay disappear, reducing
the supply, and increasing its value if there is
also a demand for the item.
Therefore, the baseball card of a famous
current baseball player bought today will not be
worth asmuch as one of a famous ballplayer
from the 1960s such asWillieMays, Hank
Aaron, or Mickey Mantle. Why?When there is a
smaller supply of these older cards, collectors
who want thempay moremoney due to the
cards’
scarcity
. They gain greater value over
the years.
Let’s view supply and demand froma
different angle. You can have a greater supply of
an itemand not enough demand. For example,
companies can produce toomany seasonal
products such as Halloween candy or Christmas
items. To sell the leftover products, store
merchants will have sales. Merchants canmark
down the price of these products by 50% or more.
Consumers will pay much less for these products.
If a product does not sell well, in business, this
is called a
loss
. It’s a good point to remember
that there is risk involved in business.
Another factor that can affect supply,
demand, and price is technological
innovation
.
As we learned earlier in Chapter 4, themarket
for a product can shift rapidly when amore
efficient means of providing goods and services
appears. As examples, think how quickly digital
cameras, mobile phones, MP3 players, and video
gaming systems are replacing other products
because they are in greater demand, more
convenient, andmore efficient. The products
they replace become obsolete, similar to how the
personal computer replaced the typewriter.
In summary, our economy produces goods
and services for profit as long as there is a
demand from consumers for them. The price of
these items is determined by howmuch demand
exists and what supply of these products (or
services) is available tomeet the demand. And
any technological advancement can lead to a
dramatic shift in this economic system.
Goods are
Moved
SERVICE.
requiring
transportation
systems,
such as
boats, trains
and
tractor trailers,
which creates a
Producers
Create
SUPPLY.
goods
such as
food, clothing,
and
building
materials,
which creates
Consumers
Have
DEMANDS.
needs
and
wants,
such as
food,
clothing,
and
buildingmaterials,
which creates
Goods are
Sold
SERVICE.
requiring
stores
and
markets,
where
store owners
and
salespeople
sell,
which creates a
Consumers like to eat
candy, which is a
want
.
A chocolate factory such
as Hershey
produces
the
candy the consumer
wants.
Trucks, trains, boats
or
planes
take the
goods
to
stores
where they can be
sold
to
consumers.
Clerks
and
cashiers
at
stores
sell these
goods
to
consumers.
The factory, the
trucking company
(transportation),
and the
store
all profit from the sale of the candy, and
the consumer gets these goods, the candy he/she wants.
84
Understanding Pennsylvania
