Econ 101

Would you like to learn more about economic data and how it impacts you?

You've come to the right place! EconDash™'s Econ101 will provide an easy-to-read tutorial on basic economic concepts, focusing on those that impact the entire United States region (these concepts are called macroeconomics).

There are three basic concepts that tie economics together:

1. Demand - Demand summarizes the behavior of buyers. The quantity of a product or service that buyers demand varies with its price. As the price rises, the quantity demanded falls, and vice-versa.

Example: Digital TVs initially were priced over $3,000, so the quantity demanded was low. As digital TVs have fallen in price, the quantity demanded has risen. If their prices were to fall to, say, $300, the quantity demanded would skyrocket.

2. Supply - Supply summarizes the behavior of producers and sellers. The quantity of a product or service produced and offered for sale depends on its price. As the price rises, the quantity supplied rises, and vice-versa.

Example: When oil prices are at $10 per barrel, drillers cannot make money, so they do not explore for new sources of oil. However when oil is over $30 per barrel, significant profits can be achieved so oil exploration significantly expands.

3. Equilibrium – Equilibrium summarizes the outcome of the market process. If the price of a product or service is “too high,” the quantity supplied will exceed the quantity demanded, creating a surplus of the product. That surplus leads sellers to cut prices. However, if the price of a product or service is “too low,” the quantity supplied will fall short of the quantity demanded, creating a shortage of the product. That shortage leads sellers to raise prices. In equilibrium, the price is “just right,” with no surplus or shortage, because the quantity demanded equals the quantity supplied.

Example: At any moment of time in the stock market, the equilibrium price of Microsoft shares is the price at which the quantity of shares demanded equals the quantity supplied. If, at any moment, the price of Microsoft stock were below that equilibrium price, orders to buy shares of Microsoft would exceed orders to sell, and that shortage would drive up the price. If, on the other hand, the price of Microsoft stock were above the equilibrium price, orders to sell shares of Microsoft would exceed orders to buy, and that surplus would drive down the price.

From day to day – and minute to minute - the equilibrium price of Microsoft stock changes as new information arrives and changes demand or supply. When investors want to buy more shares of Microsoft, they bid up the equilibrium price, and the market booms. On the other hand, the equilibrium price falls when investors decide to sell more of their shares.

The familiar integration of Demand, Supply and Price looks similar to the following chart.