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  • Dad, I want to get these shoes but they are $150. Why are shoes so expensive?
  • Well, the supply is limited and the demand is high.
  • When supply is limited and demand is high, the price is higher
  • For example if there are only two pairs of sneakers and 100 people want to buy it, the producer can charge the consumer a much higher price, but if there were a 100 pairs and only 2 people wanted to buy it, the price would likely be much lower.
  • The producer needs to determine the price of the goods.  If the product is in high demand, you can price higher and the price is elastic. This means it can stretch like a rubber band.  However if the product is not in high demand, then then the price may not be able to be increased, meaning it is inelastic.  
  • It is for the producer to determine the market price, which is the right price for the market. If the price is too low, you lose potential profit. If the price is too high, you will not be able to reduce your supply.
  • As a producer one of the most important things you can do is influence demand. Producers can influence demand by effectively marketing the product.  An example of this is when a famous actor or singer endorses a product on instagram. If all of their fans want to buy it, the demand is increased,
  • It is for the producer to determine the market price, which is the right price for the market. If the price is too low, you lose potential profit. If the price is too high, you will not be able to reduce your supply.
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