woman, girl, icon @ Pixabay

As supply decreases, prices increase.

This is a phenomenon that can be seen in the natural world and also applies to economics.

In this blog post, we will talk about how demand impacts price changes as well as an example of this happening in real life with the recent California drought.

In economics, the law of demand states that goods and services with a higher price will be less likely to sell than those with lower prices.

hands, stop, money @ Pixabay

 

When we think about why this is true, it becomes clear- people buy things they need at a point in time (i.e., bread for breakfast) because their current income levels allow them to do so.

If you increase the cost of something like milk or eggs then someone who has been buying these items may no longer purchase them.

So by increasing the supply while also maintaining constant consumption.

There would not be as many units sold which means producers don’t make as much money.

But more importantly consumers are spending more on each unit purchased!

Since California’s drought from 2011 through 2017 caused water

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