Short Side Rule

Sometimes economists give fancy names and mathematical descriptors to relatively simple ideas. It's a form of job security. But, to be fair, every profession does it to some extent. How much would you respect your doctor if they referred to your elbow as "the arm bend?"

Enter: the short-side rule. It basically states that, when a buyer and a seller get together, whoever wants to do the least amount of business determines the amount of business that will actually get done.

Example:

You have 200 hundred pickles you want to sell. (Never mind now how you got them; you just have them.) Your brother is willing to buy 3 pickles. You want to sell 200. He wants to buy three. How many pickles will change hands in this transaction?

Right...three. This situation shows the short-side rule in action. When supply and demand is out of whack, whichever side is lower determines the size of the transaction. Supply in the pickle example was high. Demand was low. Demand determined how many pickles changed hands.

It could easily go the other way. You want to buy another 200 pickles, but can't find anyone who had more than 20 in their fridge. You don't get to buy more than 20. Your demand is high. But supply is low. Supply represents the short side this time.