the willingness to purchase it.
If the supply is higher than the demand, the market is thrown off balance and costs typically decrease.
The opposite is true if demand is greater than the supply available because that commodity is more desirable and harder to obtain.
Elasticity is another key concept in economics.
Essentially, here we're talking about how much the price of something can fluctuate before it has a negative impact on sales.
Elasticity ties into demand and some products and services are more elastic than others.
Understanding the Financial Markets
As you might expect, many of the factors that play into economics have to do with the financial markets.
This is also a complicated matter with many subtopics that you can dive into.
First and foremost, it's important to understand how prices are set in a market economy. At the heart of this is information and what is known as a contingent contract.
Essentially, this type of arrangement places stipulations on the price paid based on external factors: if X happens, then I'll pay this much.
One question that many investors have is "What happens to my money when stock prices go down?"
The answer is not easy, and before you dive into the stock market, it's essential that you know how it works.
To further complicate things, economic situations like a recession can throw many things off.
For instance, just because an economy goes into recession, doesn't mean that prices will fall.
In fact, it's the opposite for things like housing. Quite often, prices go up because supply is down and demand is up. This rise in prices is known as inflation.
Interest Rates and Exchange Rates
Interest rates and exchange rates also cause fluctuations in the markets.
You will often hear e conomists express concern over these. When interest rates go down, people tend to buy and borrow more. Yet, this can cause interest rates to rise in the end.