The Market Economy Explained

If anyone is wondering how the energy crisis works this may help to make it clear.

Supply and Demand

There once was a little village miles from anywhere. The little village had 100 houses and two bakers. Each baker made 50 loaves a day, so every house in the village got fresh bread. The loaves were sold for £1 each so each baker got £50 a day in sales.

Now loaves cost the baker 50p each to make, so after making the loaves each baker had £25 left over which he used to keep his family.

But then there was a great storm and one of the bakers shops got struck by lightning and burnt to the ground. The other baker could only make 50 loaves a day, so when the villagers found that they all could not have a loaf, they offered to pay more.

First they offered £1.50, then £2, then £3 and even £4. But only half the villagers could afford £4. So the baker sold his 50 loaves for £4 each.

This meant he now got £200 in sales. But the loaves still only cost him 50p to make, so instead of £25 left over a day he now had £175. Making seven times more money than he was before, he was becoming very rich.

Those people who could not afford £4 for a lof of bread had to eat what they could grow in the garden, or food they could find growing wild. Some stole potatoes from the nearby farms. All were hungry.


The villagers demanded a meeting with the Mayor. They said “We are starving. What will you do?”

“Hmm” said the Mayor (who could easily afford the £4 loaf herself and was not starving) “Don’t worry I’ll make sure you only have to pay £2 for a loaf”

“It was only £1 a few months ago,” said a little girl. “so that’s double.”

“Ah but it’s £4 now, so that’s half.” said the Mayor.

“But the baker can only make 50 loaves” said the little girl “and we need 100!”

“Everyone will be able to buy a loaf every other day” said the Mayor. “That’s fair.”

“So the baker will only get £2 per loaf then?” said the little girl.

“No the baker will get his full £4 that’s only fair.”

“But he’s making loads more money than he did before, where will the money come from?”

“My friend Mr Banks is lending the money and we’ll pay him back over the next five years by an increase in council tax” smiled the Mayor

“Why not increase the baker’s council tax?” said the little girl.

“Shut up, little girl.” said the Mayor.

Then the baker and Mayor went to Mr Banks for tea.

Liz Truss