Children’s understanding of market forces

This study investigated children’s understanding of the effect of changes in supply and demand on the exchange value of everyday goods and services. Sixty-four children (aged 6, 8, 10 and 12) were told short stories and asked to predict whether certain circumstances would affect price or exchange rate. Explanations for their answers were also elicited and scored. Two dimensions were manipulated in the stories: Money vs. barter, and supply vs. demand. A second study (N = 64) sought to dissociate effects of supply and demand from direct and indirect causation. It was found that children can understand supply and demand to a larger extent than was thought, and that demand effects are easier to understand than supply effects. The findings are interpreted in terms of the relative complexity of the mechanism in each case.