Supply and demand

zappahey

IveSeenTheLight wrote: »

I've already said I agree that the amount of buyers must equal the amount of sellers.
I still don't agree that supply must equal demand.

1) My wife tried to buy tickets for the X Factor and found the venue sold out.
2) Every year there are people queued up to get into Wimbledon on peoples Sunday, not all get in.
3) At St Andrews Golf Course, they hold ballots to see who will be able to play the Old course, this is because they always have more demand than they can allow to play.

These are examples where demand is greater than supply.

None of those are free markets and they are using factors other than price to constrain demand.

Chances are that if, for example, they put any of the above tickets/rounds on ebay, rather than using ballots or first come first served, the price would rise to such a point that demand exactly equals supply.

As an aside, in another place someone once described an ebay winning bid as "someone being happy to pay more than anyone else thought the item was worth". This is what would happen with these tickets, the price would rise until only x people would be happy to pay the price, where x equals the number of tickets available.

IveSeenTheLight

StevieJ wrote: »

The supply was only greater than the demand at that price, drop the price and supply/demand theory says that demand would increase.

I agree in simplistic terms, although not totally.
Dropping the price would likely increase the attendance, but not necessarily sell the ground out.

This is why I am saying supply does not have to equal demand

I guess my other examples where there was not enough supply, prices could have been increased such that only those willing to pay the higher prices would go to a concert, watch Wimbledon or play golf at St Andrews.
However this is not what is actually happening in the real world and in these examples there are more demand than supply.

Let's say I start up a new business selling apples.

Week 1 - I pick 100 apples but only sell 50 (even by trying to reduce the price). Did the supply equal demand?

Week 2 - I reduce my supply and only pick 50 apples, but due to word of mouth over the great tasting apples I am selling, I sell the 50 and have a further request from 20 more people looking for the apples that I have sold out of. Did the supply equal the demand?

IveSeenTheLight

zappahey wrote: »

None of those are free markets and they are using factors other than price to constrain demand.

Constrain demand they may be limiting demand but there is still an unfullfilled demand there.
Supply did not equal the demand

zappahey wrote: »

Chances are that if, for example, they put any of the above tickets/rounds on ebay, rather than using ballots or first come first served, the price would rise to such a point that demand exactly equals supply.

So the supply = demand statement only applies to auctions where there is no limit to the price.

What about my Bolton - Portsmouth game example? If the tickets were given away free, would that gaurantee that the ground would have every seat filled?

StevieJ

IveSeenTheLight wrote: »

I agree in simplistic terms, although not totally.
Dropping the price would likely increase the attendance, but not necessarily sell the ground out.

This is why I am saying supply does not have to equal demand

The supply and demand model is only effective 100% in 'perfect markets' i.e. a market where perfect market knowledge is availlable to all participants and no friction exists (e.g. rationing for cup final tickets by the club). This does not mean it is not valid it just means that the supply/demand equation will not be 100% effective in normal markets.

IveSeenTheLight

StevieJ wrote: »

The supply and demand model is only effective 100% in 'perfect markets' i.e. a market where perfect market knowledge is availlable to all participants and no friction exists (e.g. rationing for cup final tickets by the club). This does not mean it is not valid it just means that the supply/demand equation will not be 100% effective in normal markets.

Effectively, this is a theoretical model not applicable to any market I can think of.

zappahey wrote: »

As an aside, in another place someone once described an ebay winning bid as "someone being happy to pay more than anyone else thought the item was worth". This is what would happen with these tickets, the price would rise until only x people would be happy to pay the price, where x equals the number of tickets available.

If e-bay is viewed as a free market, how come I once put up for sale a copy of Sid Meyers Alpha Centauri with no reserve, 0.01p starting price and free P&P and it didn't sell.
My supply was 1 but the demand was 0

Similarly, I once advertised free for collection an old flymo lawnmower I no longer had a requirement for.
Again the supply was 1 but the demand 0

CLAPTON

The suppy - demand curves are an attempt to explain how the PRICE is determined when

there are many sellers acting independantly
and many buyers acting independantly

it is NOT about the number of products but about the number of sellers acting independantly

so the price of a football match ticket is NOT determined by the supply - demand curves as there is esssentially only one seller who can determine the price. The take up of tickets may well be determined by the price but the price isn't determined by supply and demand.
In practice the price will be determined by factors like wanting to maximise total profit or it may take 'social' factors into account (the wish to encourage young people to attend, attract families etc), but supply and demand does NOt determine the price.

zappahey

IveSeenTheLight wrote: »

Constrain demand they may be limiting demand but there is still an unfullfilled demand there.
Supply did not equal the demand

But they are not free markets! Your disagreement was

IveSeenTheLight wrote:

Supply does not have to equal demand in a free market

So the supply = demand statement only applies to auctions where there is no limit to the price.

No, it applies to any situation where price can fluctuate in response to changes in supply and demand.

This is me giving in.

zappahey

IveSeenTheLight wrote: »

If e-bay is viewed as a free market, how come I once put up for sale a copy of Sid Meyers Alpha Centauri with no reserve, 0.01p starting price and free P&P and it didn't sell.
My supply was 1 but the demand was 0

For some things, there's no demand at any price

IveSeenTheLight

zappahey wrote: »

For some things, there's no demand at any price

Agreed, hence my reasoning that supply does not have to equal demand in a free market;)

Time to move on now I think.