The Tug-of-War That Runs the World: Supply and Demand
May 2025 | By Samyukta Pai
Have you ever been in dire need of the newest Nike sneakers… only to realise they’re sold out in every Foot Locker and online store? These moments of disparity actually drive businesses and profits, giving us a glimpse into the world of supply and demand, the foundation of economics!
In 1776, a Scottish economist named Adam Smith published a revolutionary book: The Wealth of Nations. He noticed something uncomplicated: sellers want to receive higher prices for their goods, while buyers prefer to pay lower prices. This tension in opposing interests in the market leads markets towards efficient solutions.
It seems familiar, right? Take the Wantilan at JIS. When Sodexo raises the price of pretzels to IDR 50,000, the quantity demanded decreases as fewer students are willing and able to purchase at that price point. If the price drops to IDR 10,000, everyone’s crowding in line for the cheapest breaktime snack. That’s supply and demand in action.
Imagine you open a lemonade stall at JIS. On the first day, you sell lemonade for IDR 10,000 per cup. You bring 10 lemonade cups, and they’re gone in 10 minutes: everyone wants one! That’s high demand.
The next day, you bring 20 and charge IDR 20,000. Some students still buy your lemonade, but not as many as the day before, because the price is higher. Some say they can find it cheaper at Sodexo. That’s the law of demand: as the price of a good increases, the quantity demanded decreases, ceteris paribus.
But at the same time, YOU, the seller, love the profits that arise from the 20k per cup. You’re thinking of bringing even more lemonade glasses next time. That’s the law of supply: as the price of a good increases, producers are willing and able to supply more units because the higher price can cover the increasing costs of production.
This exposes both the positive relationship of the supply curve and the negative relationship of the demand curve. More explicitly, when the price increases, supply increases, but demand decreases. And when the price decreases, supply decreases, but demand increases.
These two ideas are in a perpetual state of tug-of-war. They always push and pull until they meet at one point, which we call equilibrium (the price at which quantity supplied equals quantity demanded).
Now, say there is a new trend–Prime is THE new refreshing drink—and suddenly, your poor lemonade has been forgotten about. Suddenly, the demands for your product shift, moving downwards, thus decreasing.
Alternatively, assume you don't come to school one day, and there is no one to man your stall. For that day, you sell nothing, making no profits. Hence, your supply shifts, moving downwards, thus decreasing.
Shifts occur when something that isn't related to price changes–more specifically, we call this a non-price determinant shift. Such as:
A change in fashions (trends)
Changes in income (students get more allowance)
The number of buyers increases/decreases (student populations)
There are more substitutes on the market (Prime, Sodexo lemon tea)
The costs of manufacturing (land, labour, capital, entrepreneurship) change
Figure 3: Shifts of the Supply and Demand Curve
When we refer to the costs of manufacturing changing, we are referring to changes in the four factors of production:
Land includes not only the physical land your lemonade stand sits on, but also where lemons are grown. Assuming a drought hits the farm you buy your lemons from, this would shift the supply curve leftwards.
Labour includes any workers you hire to sell glasses of lemonade at your stand. If your employee is sick, then who's there to make and sell lemonade? A shortage of labour means fewer cups sold and less supply overall.
Capital refers to the machines and equipment you use to produce lemonade. For example, if your juicer malfunctions or you don’t have enough ice, your ability to make lemonade is limited, decreasing your supply.
Entrepreneurship refers to your ability as a businessman to combine the other three factors and take on opportunities. If you mismanage your lemonade stand, the whole business can fall apart. These entrepreneurial decisions impact whether your business thrives or even operates at all.
However, when the product of the price itself increases or decreases, we call this a movement ALONG the curve, NOT the movement of the curve itself. Simply put, let's say you increase the price of lemonade from 10k to 20k. This would cause a shift up along the supply curve, thus suppliers offering more. Similarly, it would cause a shift up along the demand curve, however, lead to consumers buying less.
After Adam Smith, later economists such as Alfred Marshall created graphs like this one to show the push and pull forces of supply and demand. This occurred due to the discovery that all economic activities can be linked back to supply and demand.
How does it explain all of economics?
Naturally, the example used today–lemonade–is not representative of markets across the world. However, even logic as basic as supply and demand helps explain the most basic behaviours of businesses and consumers worldwide and phenomena including:
Why gas prices rise during the travel season.
Why older iPhone models become less expensive when a new model is released, as demand shifts toward the newer technology.
Why jobs pay more or less depending on how many people want that job versus how many are available.
In fact, economists often refer to this as the invisible hand in the market, quite literally meaning a force that guides what we buy and sell.
So, next time you're waiting in an excruciatingly long line for a new box of Jordans, or have had to pay unjustified amounts of money for some Dubai Chocolate bars, you’re part of the giant dance of supply and demand!
Glossary
Supply: How much of a product sellers are willing to offer at different prices.
Demand: How much of a product buyers want to purchase at different prices.
Law of Demand: As the price of a good increases, the quantity demanded decreases, assuming nothing else changes (ceteris paribus). People usually buy less when things get more expensive.
Law of Supply: As the price of a good increases, the quantity supplied increases. Sellers are more willing to produce and sell when they can make more profit.
Ceteris Paribus: A Latin phrase meaning "all else being equal."
Equilibrium: The point where quantity supplied equals quantity demanded. It's the market “sweet spot” where buyers and sellers agree on price.
Land: All natural resources, such as land itself, water, minerals, forests, and wildlife.
Labour: Human effort, both physical and mental, used in production, including the skills and qualifications of workers.
Capital: The tools, machinery, and equipment used in production, as well as the infrastructure like factories and roads
Entrepreneurship: The skill and willingness of individuals to organize and manage the other factors of production, take risks, and innovate.
