Use a specific example to show how supply and demand affects prices of a specific product or service.

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Supply and demand work together to set the prices of goods and services.  Let us look at the supply of and demand for teachers as a way of looking at how this works.

The demand for teachers comes from the number of schools that exist in a given area.  As more schools come to exist, or as schools get bigger, more teachers are needed.  The supply of teachers comes from the number of people who are willing and able to get themselves the necessary qualifications to become teachers.  There is a complicated relationship between the supply and demand of teachers and their price.  Both the supply and the demand of teachers will be affected by the price of teachers.  At the same time, the price of teachers will affect the supply and the demand.

Let us say that many new schools go up and there is a high demand for teachers.  If this happens and there are not enough teachers in the area (low supply) the price of teachers will go up.  This will happen as schools compete to hire the few teachers who are around.  In this way, high demand and low supply cause prices to rise.

But as prices rise, the supply and demand will change as well.  When prices rise, more people will want to be teachers.  After all, if you are going to be paid more for a certain job, that job will look more attractive.  At the same time, the high prices will cause demand to drop.  School districts will not be able to afford as many teachers.  They will start to try to increase class sizes so they won’t have to hire as many teachers.

From this, we can see that supply and demand work together to set prices.  At the same time, prices affect supply and demand.

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