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Supply & Demand

Supply & Demand

The Law of Demand

Okaylet's start with a basic and simple fact: as the price of something falls, demand for it rises (aka more consumers will want it, so quantity increases); and as the price of something rises, the demand for it falls (aka quantity decreases). This is the law of demand and every kid who has ever sold lemonade, baseball cards, or Beanie Babies understands it. If the price of a good is cut in half, more people will buy it, so there is more of it on the market. If the price doubles, fewer people will buy it, so there is less of it on the market.

But the concept of demand is a bit more complicated than the law of demand. (Or at least economists like to make it sound more complicated.) So to make sure you don’t embarrass yourself at a cocktail party filled with economists (yeehaw), memorize this definition. Demand refers to the amount of a good or service that people are willing and able to buy at a specified price.

There are a couple of key phrases in this definition—willing and able and specified price. To accurately gauge demand for a particular item we need to eliminate the willing but unable and the able but unwilling—in other words, there may be plenty of people with interest in our item but no money. And there may be people with plenty of money but absolutely no interest in the good. They should not be factored into our calculation of demand. Moreover, identifying a vague interest in a product is meaningless unless we can link that interest to a specific price. Sure, you may like what we are selling, and you may be willing and able to buy our product—but are you willing and able to pay $3? $4? $5?

Demand, therefore, means more to economists and businessmen than some vague, desire for something—it refers to the amount of a good or service that people are willing and able to buy at a specified price.

Why It Matters Today

The summer of 2010 has been a tough one for the concert industry.  Several high-profile tours (U2, anyone?) have been cancelled, customers seem turned off by high ticket fees, and the overall slump in the economy has a lot of folks less willing to fork over big bucks to see a show.

One industry insider called the summer touring season "a bloodbath" for the industry.  Ouch.

But not everyone is struggling.  A Taylor Swift/Justin Bieber show at Boston's Gillette Stadium set records by selling out, grossing nearly $4 million.

The moral of the story: Demand for concerts in general is falling.  But demand for Taylor and JBiebs remains sky high.

Sometimes, a Song Says it Better: I Want It All, by Queen

“I want It All” – that’s demand.

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