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Supply and Demand Are Not Just About Price

Updated on April 7, 2020
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A retired guy that remembers when values were not measured in monetary terms but were all about the important things in life.

Remember Who Led the Class

During high school and university economic classes I was exposed to the idea that supply and demand dictates price and it goes up or down based on what the current measurement of supply or demand might be. I guess the fact that is was largely taught by folks that liked the binary approach to things (right or wrong, negative or positive, pass or fail) made this the accepted thinking. Can it be that basic or is it more likely to much more complicated? I mostly felt it was more complicated such as concepts like buying the lowest price is best, we are all one of 4 types of personalities or we are either conservative or liberal in our political/sociological beliefs—all assume a snap shot in time and supposedly don’t change over time. In my experience, which is spread out over a bunch of decades, life and human beings on this planet aren’t built that way—they are both a lot more complex and have different makeups.

Current world conditions point to how the simplistic chart that shows price goes up on things when the supply goes down or consumer demand increases is not the full story. Firstly, this assumes that the consumer (which is more than just you) will actually pay the new inflated price. Medical supplies throughout the world are currently in very high demand and short supply due to a largely unforeseen influence which revolves around the malady known as the coronavirus.

Bottom line thinking changed how and where things are manufactured and it would seem that common-sense was put on the back burner. We had no worldwide events that changed supply or demand dramatically happen over a lot of decades such as those experienced in World War I and II and the population just grew steadily so predicting demand was a lot easier since all the curves were a lot smoother than what we are likely experiencing in 2020. The worldwide medical supply demand curve has to have a large spike in it during the first quarter of 2020 and so supply (without doing anything unusual) will drop and the price goes up.

But the world is resisting paying the price since this is deemed an emergency and it has shown how the low cost producer (who happens to be largely a long ways away geographically and has slow delivery) cannot respond to spikes in demand effectively. So common-sense is beginning to prevail and governments are attempting to trigger local and domestic supply of medical supplies which also takes time to implement. It certainly points out how vulnerable all economies are (in the short term) if they depend too much on supply that comes from somewhere else than their own domain.

Also, in order to sell products to the end-user they must have the financial resources to pay for those items and that means they need to be actively employed in something that returns an income. Governments are not a good answer since they draw their income from consumers and businesses that produce various items that are sold on the world market. So if you don’t produce much locally or domestically then that income is not sufficient to keep up with needs of a government to feed its needs. (I’m not going to get into the details of that one since they don’t seem to be showing a consistent pattern of common-sense as to what they might be right now or maybe ever).

So there is the potential for local and domestic production to increase throughout the world due to world conditions and not just in the medical supply business. According to the website Worldometer, the global population changes by a net of 2 people every second (4 are newborns and 2 die for a myriad of reasons). The world is growing at a fast pace and supply and demand will always be an important measure of economic conditions throughout the world but the bigger picture points to other more influential patterns.

The advent of the coronavirus has pointed out how situations affect us globally and more locally such as the virus seemed to have wider and quicker dispersion in more densely populated areas (New York City and London, England are two possible examples). The world has a lot of habitable space on it (some not so good) and we tend to mostly all want to live in urban centres. We probably would be better off if we spread out the population and production, focused on sustainability of supply and flattened a whole bunch of other curves like population growth.

What we should have learned is that the financial bottom-line is not the best way to measure success and supply and demand are dynamic and we could spend more time on focusing on the reasons for change in those. We painted ourselves into a corner when we focused on the lowest-priced supplier and now we want a quick solution to our mistake.

What Is In Your Realm of Control

Buy local or domestic, buy just what you consume in a reasonable amount of time, and most of all, use more common-sense in your daily activities and we all will be better off and, hopefully, that is sooner than later. There is more than one curve that could benefit from a little flattening right now.

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