Shifts in Supply and Demand

You know when you read or hear a word so many times it starts to seem like something...alien? Well, that’s supply and demand for anyone who’s been anywhere near the field of economics.

Let’s break it down.

Supply is the goods (physical things you can buy) and services (not physical goods, but things you have others do to help you...think: marketing, hairdressers, financial advisers, etc.) that companies and people make. Demand is what goods and services people actually want to buy.

When supply and demand meet, it’s a beautiful thing: exactly the amount of stuff that was made was also bought, and that’s at a certain price that we call the “equilibrium.”

When there’s high demand and low supply, the price of the supply can go up. Because there’s not that much of the good/service and a lot of people want it, prices rise. Think of Uber on a Friday or Saturday night: lots of drunk people who want rides, and not as many Uber drivers to haul their drunken butts around as usual...so prices surge.

When there’s low demand and high supply, suppliers have a surplus. Too much stuff and not enough people to buy it—at least at the normal, equilibrium price.

So how to get people to buy it? Lower the price. Stores like TJ Maxx and Ross are a good example of this: the same stuff is sold to consumers there that it was elsewhere, but at a lower price, because it didn’t sell at the other stores from too much supply.

Supply and demand works the same in macroeconomics, but on a larger scale, which means larger consequences. A low supply of Ubers and a high demand from drunk people who are pissed at the high prices is nothing compared to a low supply of a staple food to an entire country (then the whole country is pissed at the lack of supply and/or higher prices on the little supply available). Likewise, having a surplus is a much bigger deal in macroeconomics.

It’s important to think about how things work internationally, too. For instance, the U.S. subsidizes their farmers. Why? If U.S. farmers were to compete with international farmers, they would quickly disappear from the market, because imported stuff is cheaper. So we subsidize farmers to artificially change the supply situation of food that farmers produce in the U.S., likely because we don’t want to be dependent on other countries for our food, even if it is cheaper.