5. Economics Basics

Economics is the study of how people use limited resources to meet unlimited wants. Because resources are scarce, every choice has a trade-off, and the value of what you give up is the opportunity cost.

In a market economy, prices are set by supply and demand:

• Demand — how much buyers want at each price. As price rises, demand usually falls (the downward line).
• Supply — how much sellers offer at each price. As price rises, supply usually rises (the upward line).

Where the two lines cross is the equilibrium price. If something becomes scarce (a frost ruins the orange crop), supply drops and prices rise. If a product becomes popular, demand rises and prices climb too.

⚠️ Common misconception: 'supply' and 'demand' are not the same as 'how much exists'. They describe amounts at each price, which is why a graph shows lines, not single dots.

💡 Tip: scarce + wanted = higher price; plentiful + unwanted = lower price.