ELI5: supply and demand

// eli5

What is supply and demand?

Supply and demand is like a game between buyers and sellers trying to find the right price for something [1]. When lots of people want a toy but there are only a few in the store, the price goes up—that's demand being high and supply being low [4]. When nobody wants something and the store has tons of it, the price goes down [4].

Why does it happen?

People want things, and stores have things to sell [2]. The magic happens when buyers and sellers meet and agree on a fair price [2]. If everyone wants pizza but only one pizzeria is open, they can charge more money [4]. If ten pizzerias are all competing, they have to lower prices to get customers [4].

What does it feel like in real life?

Imagine you're selling lemonade on a hot day—lots of kids want it, so you can charge more [4]. On a cold, rainy day, nobody wants lemonade, so you have to drop the price to sell any [4]. The hotter it is, the higher your demand goes, and the higher you can set your price [4].

How does the price find the right spot?

Buyers and sellers keep adjusting until everyone is happy [2]. The seller wants the highest price possible, the buyer wants the lowest price possible, and eventually they find a sweet spot where the sale happens [1][2].