BUSINESS
Supply and demand
How market disruptions and individual decisions impact the market by Ben Campbell, Ph. D, Associate Professor and Extension Specialist, UGA Department of Agricultural and Applied Economics
Supply and demand are such simple concepts; yet understanding what drives these two concepts is extremely complex. Just when we think we have it figured it out there is a market disruption (big and/or small) that moves the goal line and makes us have to rethink pricing, marketing, etc. in the short- and longrun. Some key concepts to note:
1.
Supply: the amount of a good or service a firm will try to sell in the market; law of supply-the higher the price, the more the firm will try (would like to) sell in the market,
2.
Demand: the amount of a good or service a consumer will buy in the market; law of demand-the higher the price, the less a consumer will purchase,
3.
Equilibrium: where supply and demand meet; generally, this would be where we see a large number of firms pricing at or near;
4.
Margin: the difference between what price a good/service is sold for (price) and the cost of getting the good to market. In a world with no disruptions the market would move to and stay at an equilibrium point where price and quantity would remain static over time. However, a world without disruptions does not exist so supply and demand (and consequently the equilibrium and a firm’s margin) are constantly changing.
Let’s look at some examples.
coronavirus pandemic quarantined people at home many turned to landscaping to fill their time. As more and more people began to landscape, the demand for pine straw and other landscaping materials (e.g., plants) increased drastically, driving prices higher. In many cases a higher price in Georgia would result in importing pine straw from other places to take advantage of the shortage in Georgia caused by the increased demand. However, we saw increased demand throughout the U.S. which resulted in prices moving higher with no mitigation from imports. Coupling this with rising input costs (e.g., freight and labor shortages, gas prices increase, weather, etc.), which would tend to lower supply and drive-up price, prices increased to a new higher equilibrium. Moving out of the pandemic we would expect demand to decrease from their 2020 levels. However, on the supply side we would expect input prices to increase and producers to look to bring more pine straw in production (such as acquiring new acres to harvest) to take advantage of the shortage in the market. Given this scenario, lower demand and increased supply will drive down price while increased input costs will drive up price. The bigger of the two effects will dictate whether price increases or decreases in the future.
straw. As we moved into 2020 a plethora of Sod. Prior to the Great Recession of 2008-2009 the 4Pine market disruptions hit the market that have driven 4 sod market was full of suppliers with many firms prices higher. These disruptions hit both the demand and supply side of the market. For instance, as the
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expanding production acreage. As the Great Recession took hold many firms (and acreage) left the market
