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  • About 60 min
  • 8 steps · 2 quizzes

Supply & Demand — How Prices Are Set

A hands-on first look at how prices are set, built around one small market: Saturday coffee at the Maple Hill farmers' market.

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8 steps · 2 quizzes · about 60 minutes · open any step

  1. Welcome: Why Does Anything Cost What It Costs?Start hereWhy does a coffee cost $3.50 — not $1, not $10? Nobody sets that price alone. Buyers and sellers set it together, and you're about to see how.InteractiveHands-on · 6 min
  2. Demand: The Lower the Price, the More People BuyEach of these 24 people has a top price — the most they'd pay for a coffee. If the price is at or below their top price, they buy. If not, they walk on. Try it: drag the price down from $5 and watch who joins. Every price you try leaves a dot on the chart.InteractiveHands-on · 6 min
  3. Supply: The Higher the Price, the More Gets MadeNow the sellers. The stalls could make 24 cups, but some cups cost more to make than others — cheap beans first, then pricier beans, overtime and a second machine. Each cup has a lowest price at which making it is worth it.InteractiveHands-on · 6 min
  4. Where They Meet: The Market PricePut both curves on one chart. At most prices, the number of cups people want and the number sellers offer don't match. Try it: press Start too high, then Let the market adjust. Then try Start too low.InteractiveHands-on · 6 min
  5. Check: Buyers, Sellers and the Market PriceQuiz · 4 questions
  6. Moving Along vs Shifting the CurveThere are two very different kinds of change: The price changes → we slide along the same curves. Something in the world changes (news, costs, income) → a whole curve shifts, and the market finds a new price. Try it: first drag the price.InteractiveHands-on · 6 min
  7. Elasticity: When a Price Rise Hurts (or Doesn't)When the price goes up, some customers stay and some leave. How many leave depends on the product. A steep demand curve means people barely react to price (inelastic). A flat one means they react a lot (elastic).InteractiveHands-on · 6 min
  8. When the Price Isn't Allowed to MoveSometimes a rule sets a maximum price (a price ceiling) or a minimum price (a price floor). In our simple model, a rule only matters when it stops the price reaching $3.50. Try it: set a maximum price below $3.50, then a minimum price above it.InteractiveHands-on · 6 min
  9. Case Study: 50,000 Fans, 10,000 SeatsA hugely popular artist plays a 10,000-seat venue, and 50,000 fans would love to go. The supply is fixed: no amount of money adds seats. So how should the tickets be sold? Try it: run all three ways of selling.InteractiveHands-on · 6 min
  10. Final CheckQuiz · 6 questions

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