Watch: Introduction to the economy
Now you may be wondering how I can afford to travel round the world!
Well, before I became a scientist, I ran a business.
I invented… hydrogen-powered roller skates!
They were cool. They were practical. Everyone wanted them! Demand was high, so I could charge more money.
But then lots of companies copied my idea. There was too much supply.
So I had to cut my prices to make sure people still bought them. And then someone invented rocket hoverboards!
There was no demand because people didn’t want to buy my skates anymore.
Supply and demand affected the price of my skates.
And it affects everything we can buy or sell, from cheese to gold and silver.
If a whole country has a lot of goods or services that are in demand, it can become wealthier because of the higher price.
But if there’s less demand, then the prices will fall, making the country poorer.
The amount a country makes and sells is called economic activity.
If a country’s economic activity falls, it’s called a downturn or a slump.
Businesses employ fewer people, and people spend less.
But when countries make and sell more things, it’s known as an upturn or a boom.
People have more money to spend, and businesses hire more people.
Countries have always had economic upturns and downturns, but whatever the price of oil, gold, cheese or fish, the best things in life are free!
What does economy mean?
The word economy describes how a country or place is doing in making goods, and how much money it has. The amount a country sells and makes is called economic activity.
Countries can sell many types of different goods, such as:
- furniture
- televisions
- toys
- bananas
- fish
If a country has a lot of goods that are in high demand then it can become wealthier by selling them.
What is supply and demand?
If people want to sell things there must be other people who want to buy them.
The more people want something, the more demand there is. This means that they can be sold for more money.
However, if there are lots of people selling (or supplying) the same goods, and there are not many people who want to buy those goods, then the demand will drop and the prices will be lower.
This is called supply and demand.
What makes up the economy?
In the UK the economy is made up of different types of industry.
| Industry | What is it? | What is produced? |
|---|---|---|
| Manufacturing | When things are made | Clothing, toys and equipment |
| Agriculture | When things are grown or cultivated | Food, farming and forestry |
| Service | Where people sell a service | Banking, insurance and hospitality |
Activity: Quiz – The economy
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