Economics

What makes prices soar and slouch?

If you want to, choose a specific category:

Supply & Demand    Production Expense

1. Supply & Demand:

A product's price varies mostly by two factors; supply and demand. When large supplies of an item are made, the item's cost will go down. When very few supplies of the item are made, the price will go up. When the demand of an item is high, the price rises. When the demand of an item is low, the price will go down.

2. Production Expense:

Products can't be made for free! When a toy is made of wood, and the price of wood goes up, the toy's price will go up, too, and vice versa. When a factory hires a lot of workers, they have to pay a lot of wages, and to pay them all, the factory must raise their prices. There is also taxes, distribution (transportation), and advertising.

3. Competition:

Competition keeps prices low. If you owned the only grocery store in New York City, everyone would go to you. You could charge anything you want, since the NYC citizens couldn't go to a cheaper place. But, if another grocery store is built next to yours, and has lower prices, you'd better lower your prices below your neighboring competitor, or you'll go out of business! People will shop at the cheapest place nearby, so always keep your prices low!

4. New Research:

Have you ever noticed how the price of radios have been constantly going down? Yet, the price of prescription medicine and cars have remained expensive? That's because radio makers don't need to research for better radio techniques or features. New technologies produced by other companies make it easier to make radios, hence the price of radios will go down. However, car makers are always researching and testing for better and safer cars. Medicine makers are researching for new cures for disease. The costs of these researches and tests are paid off by raising their prices.