How does supply and demand set prices?
The Price Tug-of-War
How does supply and demand set prices?
You walk into a store and see a price tag: $3.99. Who decided that number? Not just the store owner — they're guessing what you'll pay. Not just you — you don't get to name your price. The real decider is invisible: it's the push and pull between how much people want something and how much of it exists.
Start with lemonade. You set up a stand on a hot day. You have 20 cups. A dozen thirsty people line up. You could charge $1 — they'd all buy. You could charge $5 — maybe three people would pay. Somewhere in between is the price where you sell exactly the cups you have, to exactly the people who think it's worth it.
