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Why do prices go up and down?

March 4, 2024
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FinMeUp
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FinMeUp

A short and sweet expalan

A question I get often is: "How do prices of goods go up and down? Who decided that?"

Well, some of you will be surprised to learn that it's not Woolies or Shoprite - it's us! Well, sort of. It's us and it's them. Let me explain.

The value of a product is based on supply and demand. Why is the price of an Apple R8 and not R4 or R20? Because R8 is the exact middle point (or equilibrium) where most buyers and sellers are willing to trade. This interaction between supply and demand is never-ending:
 

Demand > Supply

At R4, the buyers far outweigh the sellers (demand > supply). The result?
1/ Massive shortage in the apple market
2/ The price goes up, meaning more suppliers will enter the market (selling at higher prices) and more buyers will exit the market (buying at higher prices). 
 

Supply > Demand
At R20, the sellers far outweigh the buyers (demand < supply). This results in:
1/ Massive surplus in the apple market
2/ The price comes down, meaning more suppliers will exit the market (selling at lower prices) and more buyers will enter the market (buying at lower prices)


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