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UNDERSTANDING VOCABULARY When Sandi Beech opened her T-shirt shop, she visited clothing stores at the mall to see how much the merchants charged. She discovered

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UNDERSTANDING VOCABULARY When Sandi Beech opened her T-shirt shop, she visited clothing stores at the mall to see how much the merchants charged. She discovered that most T-shirt shops priced their top-quality shirts at about $15 each. She decided this must be the , the price where Sandi decided she needed to win as large a share of the market as possible, so she offered her shirts for sale at $ 12. Within two weeks, she had completely sold out of T-shirts. Demand for her shirts was greater than her ability to supply them. Economists would call this a Sandi rethought her pricing and decided that her highly visible location and innovative designs deserved a much higher price, even higher than the price charged by merchants at the mall. So she raised her prices to $22, Again, within two weeks, her business felt the effects. Only this time, few of her shirts were selling, so the quantity supplied was greater than the quantity consumers were willing to buy. Economists call this a Sandi had learned important lessons about prices. People buy more at low prices than at high. This is called (from Chapter 3) the Prices also determine who will get the goods and services producers like Sandi offer. This is the function of prices. Prices also motivate businesses to consumers want. When producers are able to raise prices, they are motivated to produce (more/less). As summer approached, Sandi noticed more and more people wearing T-shirts. She could expect an increase in during the summer. She also noticed that several new T-shirt shops were opening around town. This will lead to an increase in "But if demand increases more than supply," Sandi thought, "the market-clearing price is likely to

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