(for you liberals, was this lesson slow enough for you to understand?)
Let me see if I can get through to you with this example of basic economic supply vs demand principle.
You run a lemonade stand. It is outside and operates 365 days per year.
- On a hot summer day, there is a line to purchase your product. You can increase your price and people will still pay for a cup (High demand, unlimited supply).
- On a cold winter day, there is no one lined up, even though you have reduced your price to almost cost and you fear that your ingredients will spoil (low demand, unlimited supply).
- On a hot summer day, you find your supplies running out. Your customers begin bidding up the price to get a cup. (High Demand, limited supply)