Principle of effective demand

Hello little one! Today, we're going to talk about something called the principle of effective demand.

You know how when you go to the store and you want to buy something you like, you need to have money in your pocket to pay for it? Well, businesses work the same way. They want to sell their products and make money, but in order for that to happen, people need to have enough money to buy those things.

The principle of effective demand is all about the relationship between how much people want to buy something and how much money they have to actually buy it. If people really want to buy something but don't have the money to do it, that demand won't be effective.

Think of it like this: imagine you really want to buy a toy, but you only have a few coins in your piggy bank. You don't have enough money to buy the toy, so your demand for it isn't effective. If you had more money, you could buy the toy and your demand would be effective.

This principle is important because it helps businesses figure out how much they can sell their products for. If people have a lot of money and really want something, businesses can charge more for it. But if people don't have a lot of money and aren't able to buy as much, businesses might have to lower the price to make it more affordable.

So, the principle of effective demand is all about matching how much people want to buy something with how much money they actually have to spend. It helps businesses understand how to price their products and make sure they're selling things people can actually buy.