Supply And Demand

Essay by PaperNerd ContributorUniversity, Master's November 2001

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After reading this article, I was left with some questions instead of answers. I understand that economically speaking supply refers to a relationship between alternative prices of goods and services and the quantity of this good or service that producers sell on the market at a given time. For example, if I were to go shopping and notice tee shirts on sale, I would tend to buy more than one. However, the law of supply states that at higher prices, the greater the supply and vice-versa. Why? I mean does this rationale come from the fact that Americans feel that the more expensive an object is, the better that object is? I was under the assumption that if prices were to increase, demand would decrease. Along those same lines, if demand were to go down, why would a producer increase a supply? Wouldn't the producer be losing money in this deal? The tutorial uses a milk example in the article.

That made no sense to me and I read the article twice. Why wouldn't anyone buy more if the prices were low enough? As Americans I believe that when prices are lower, Americans buy more. We just can't seem to get enough of a good sale. Does this go against this economic concept of supply?