008: DEMAND AND SUPPLY. HOW LIFE WORKS
Demand and Supply
Economics is essential the science of choice. A lot of economic theory is based on the premise of perfect information. This is the assumption that everybody in the economy has all the info available to him or her to make the best choices. That is the most rational thing for us to do. As I’ve stated in previous posts you can influence human behaviour via the manipulation of incentive. If I told a Beyonce fan at work that I will give her front row tickets to her next show if she showed up to the next working day half a hour early what time do you think she will aim to get to work the next day?
I will now display to you to concept of demand and supply and how it answers some questions that a few of us ask on a regular occurrence. For those who aren’t very aware of economic theory questions such as the ones listed below can be tough to answer.
· “why do footballers earn more than doctors?”
· “Why does x get more girls than me?”
· “Why are transport costs always going up?”
In this post I’m going to attempt to train your brains to consume the concept of demand and supply which hopefully will answer many questions and enable you to think more rationally!
What is demand and supply?
I’m pretty sure most people could define both ‘demand’ and ‘supply’ but its also important to understand how the relationship between the two results in creating a value for whatever you are looking at in a particular market. As I’ve mentioned on previous posts I believe everything in life is a transaction, this also means I believe there is a market for everything. You can buy eggs because there is a market for eggs, different types different quantities with different prices. Even if you look at dating, there is a market place. Your currency is your personal character traits, your aesthetics and your resources. With that currency you can then trade with others to gain what you would like in somebody else in return. Well at least that’s the plan! Demand and supply are the two things that combine to create a value/price level in a market; whether its smartphones or friendships
What is demand?
Demand is essentially an individuals desire to acquire something. Every time you see a lovely lady tweet “NEED THIS OMG YAS SLAY” with a picture attachment of one sandal that looks like it was worn by those gladiators from Spartacus. That right there is demand. Naturally if something is deemed as really good, the interest that surrounds it will be high and vice versa. If we take professional football into consideration, the English Premier League is the most watched football league in the world. The viewership within the last 2 seasons is at an estimated 901million! Now consider the stadiums, which tend to range from 30-70,000 per week. The average waiting time for an Arsenal season ticket is 7 years. There are more than 40,000 people on that waiting list. That is an insane amount of demand for the product that is Premier League football entertainment. This is why players who play in this league earn millions a year whereas footballers in League 2 (3 divisions downwards) earn considerably less. Why? The league 2 average attendance is around 4-5000 per week and matches are rarely broadcasted on television. The demand for that product is not as high as it is for the premier league, which is deemed by consumers to be the better product. Due to this less companies are willing to pay top rate for advertising because the audience of League 2 football is significantly shorter than the audience for the Premier League.
It’s also important to understand that we are living on a planet with scarce resources. When I say scarce I don’t mean we have 2 packs of Tilda basmati to ration between 7 billion people. I mean that the earth has X amount of resources. We do not have unlimited lucozades, unlimited coal, unlimited wheat etc. We rely on the market to work out who gets what and how much. EVERYBODY cannot obtain everything they want to obtain. I’m sure if I asked who wants to own their own private island I’m sure 10/10 people would say yes. But unfortunately there aren’t enough private islands for everybody to have one. I don’t even think there are enough private islands to give to everybody in London let alone the world. Demand for good stuff is likely to supersede the amount of available of whatever the said good stuff we are demanding. Demand for rubbish stuff is likely to be lower than the amount of that rubbish is available. The more and more people are willing to pay for the said good/service the more likely that there are people willing to pay more. This will naturally increase the value for whatever product the consumers are demanding.
You can apply the same economic principle to human interactions. If we take a guy called Bob. Bob is very rude, Bob has no compassion, Bob isn’t funny whatsoever, Bob is violent, Bob has been unemployed since Liverpool last won the league, Bob wears 4 stripe Adidas, Bob has a reputation for stealing pots of food from his friend’s mum’s houses. Bob doesn’t sound like a sound lad at all. What do you think the level of demand for Bob’s friendship or to be Bob’s girlfriend will be out of 10? Now lets take a lady called Erica. Erica is very bubbly, she’s good looking, she’s supportive, she’s generous and she is really successful in her meatpie making business. I ask again, what do you think the level of demand for Erica’s friendship or relationship be out of 10? Bob’s is likely to be in between 0-2 and Erica’s in between 7-9.
What is supply?
Supply is the total amount of a product available for consumption. If I own a boutique durag company and we only make 50 Egyptian silk durags, then the level of supply for that product is 50. Now supply and its relationship with quantity (how much supply there is) is mostly the complete opposite to demand. Earlier on we established how the more demand there is the more valuable that product is. Whereas the more supply of something, the less valuable it becomes. I’ll give 2 examples. There are 2 pairs of trainers. 1) Yeezy Boost 350 2) Nike Air Force 1s. The Yeezys are produced with limited availability. The severely intellectually impaired (commonly known as hipsters) will queue for 3-5 working days just to get a pair of the Yeezys. Due to their limited availability some pairs are being sold for 300% of the original retail price? There aren’t enough of them available to match the demand. Now you take the Air Force 1s. Nike has been producing these by the truckload for as long as I can remember. There is no way you can enter your local trainer store and not see “White Nike Air Force 1 £69.99”. You wouldn’t have to result to Ebay or depop to find a pair for 200% of its original price, simply because its readily available for your consumption!
We can even use human beings again to further explain how supply affects value. Every human being has his or her own unique combinations of character traits. Some have loads of really positive traits like intelligence, creativity, influence, and generosity such As Nayvadius Wilborn. Those types of people are in short supply due to basic mathematics. It is unlikely that you will be born and develops into a person with 90% positive character traits. Those people tend to be the ones that fellow human beings gravitate towards. They are the cool kids in school, the ones everybody seeks their stamp of approval on social media etc. If we consider in a romantic sense, I’m sure many of us have heard the phrase “tall dark and handsome” unfortunately there isn’t many tall dark and handsome chaps available to fulfil the demand of the people. Those luckily enough to fit that description tend to have a higher market value than others simply because they are a rare commodity. Please note as I have stated in previous blogs I use these analogies for comparison and comprehension purposes only. Kindly do not complain about me likening human beings to object, take your jihad up to God because me I do not have the time x
How life works
Okay so now we all understand what demand and what supply are and how they can be used to estimate a value point, I want to illustrate to you guys why something’s in life are the way they are due to market forces. You often hear people lament how soldiers and nurses only get paid £30,000 a year whilst #SomeGuyJustKickingABallAround makes that in 4 days. APPARENTLY this isn’t fair. Nurses save lives; soldiers protect us from nations 1,000s of miles away who have no armies who have no intention of attacking us etc (hehe shade). Here is the deal, although soldiers, nurses, doctors and teachers are involved in more morally respected fields of work, due to economic principle we should never expect them to get paid the same as footballers or musicians. However in reality that is quite frankly impossible and we are going to use demand and supply why.
·Firstly the vast majority of human beings would probably prefer to be happy and entertained rather than to be sick or tap dancing away from Al Qaeda grenades.
·People will pay almost anything at times to be entertained. We prioritised entertainment. Especially now with technology we can obtain entertainment on the go now. We want to be entertained and we want it now now now! If you possess the ability to entertain you will make yourself and those who pay you lots and lots of money.
·Rihanna for example has sold over 200million records. She is likely to get a lot of money from the truckload she has made her record labels and from endorsement.
·FIFA 16 sold more than 6million copies. 600million people watched the world cup. Barcelona sold 3million shirts last year alone. The world is FOOTBALL OBSESSED.
·If you were asking kids at your local school what do you want to be most would say popstar or footballer before teacher.
·According to the BBC, in December of 2015 there were 23,000 nursing vacancies (9% of the workforce!). Unfortunately not that many people want to be nurses compared to those who would love to be a pop star.
·According to Armed Forces there were over 375,000 members of the British armed forces. According to FIFPro there are approx. 50,000 professional footballers WORLDWIDE. Remember, the less that something is available the more valuable it becomes.
·In the UK alone in 2014 there was a combined 942,000 teachers and teaching assistants. You cannot pay 940,000 people 30k a week especially as their jobs do not directly generate millions and millions.
·Drake wore a red Moncler Maya jacket in his “Hotline Bling” video and the day after the videos release Moncler experience more than a 100% boost in the daily average sales. DOUBLE! There is a limited supply of people with such influence and those people tend to be entertainers.
·Those with supreme ability are in limited supply. It’s easier to find someone to file documents or to clean up than it is to find someone who can be a CEO. Those that excel in their field always get paid more! Those we see on TV are the elite of their field. Millions of people want to be actors, singers or athletes. That position is in limited supply. Even the doctors, surgeons etc who are at the top of their field get A LOT of money. However there is still more of them than there are platinum artists and their field doesn’t generate revenue.
In conclusion, if you combine the incredible demand that we as humans have for entertainment with the short supply of people that possess the ability to entertain thousands and in some cases millions it’s actually a no-brainer why the Kim Kardashians and Steph Currys of this world are multi millionaires. We the people of planet earth determine this. If you think footballers get paid too much then don’t buy your kids the new United top every season, don’t watch MOTD every weekend, don’t buy the new FIFA every year, don’t read every football article, don’t pay £4million per year for Sky Sports 1,2,3,4,5.45 etc. We as members of the market have the power to decide who gets paid what with our demand! The combination of demand and supply can be used for us Londoners to understand why TFL wants to run up in our bank account and squeeze every penny’s neck. According to TFL the annual amount of passengers that use their service is a whopping 1.34billion. BILLION. That’s an astronomical amount of demand. Waterloo Station alone had 95million passengers. You then combine this with the scarcity of resources. There is only a certain amount of trains and buses available per day. The availability doesn’t match the demand, which causes TFL to raise their prices. Even with the vast complaints over pricing the number of TLF passengers continues to rise.
So there you have it, we should now be more aware of the how demand and supply affects almost everything around us. So next time you want to rant about how much money the Kardashians have remember that you and millions of people continuously talking about her only boosts her demand and marketability. It’s basic economics unfortunately. Slay