Supply and Demand

July 20, 2009

A family member believes supply and demand hasn’t worked in the U.S. because price has risen on many things.  I think she believes that supply and demand means things always get cheaper.

She hasn’t yet recognized that supply and demand is a framework for understanding changes in price.  Supply and demand can help her see why real prices on some things have risen. 

Rather than seeing a rising price and assuming that supply and demand doesn’t work, she should ask herself what changed in the supply or demand of the item to cause the change in the price?

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