by Ellen Kudlicki

Created on: May 22, 2008   Last Updated: January 06, 2011

The basic laws of economics centers around the concept known as "supply and demand". Most people dozed through Economics 101, so let's break this down into terms we can all understand.

Let's say you really like Chocolate donuts, and in fact everyone you know likes Chocolate donuts. If there is only one donut shop in town (which in fact would be a local monopoly) they could charge five bucks a donut if they wanted, because there was no other way to get scrumptious, delicious, warm chocolate donuts. Now let's imagine if in this same town, a SECOND donut shop opened up. They could set their price at four dollars, which would still be high, but lower than the existing shop. The other shop would lose business and be forced to LOWER their prices in order to stay competitive. By increasing the SUPPLY, the demand goes DOWN.

Perhaps later on down the road, a corporate bakery discovers this town's love of chocolate donuts and decides to make donuts by the dozen. This succeeds in lowering prices because now chocolate donuts are plentiful and even though the local donuts were more expensive and probably tasted better, people were willing to take a lower quality product to save a few bucks, just so long as they had the appearance of being people who could afford luxurious chocolate donuts. The local stores would downsize or close due to the overabundance of donuts, allowing the corporate bakery to make ALL the donuts for the area, for awhile. But soon, with rising costs of retirement, insurance and disability, the corporation would find itself top-heavy with overpaid management and overpaid production line employees. So to save the brand at all costs, the company would fire domestic employees and move the entire factory overseas-where the managers would still get hefty incomes, but the line workers were paid in dollars per week instead of dollars per day. The citizens still wanted to have those desirable chocolate donuts, but now in order to keep a profit for stockholders, the company has possibly mechanized, off-shored or eliminated jobs that allow money to return to the economy.

On top of that, let's assume that Congress, concerned about the increasing girth of its citizens, decides to limit the number of yummy chocolate donuts that can be made in this country. Now imagine that a factory in Indonesia makes really cheap chocolate donuts. They could sell them for a dime a DOZEN. That would drive out the local shops and corner the business with lower grade, cheaper quality

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