Thursday, May 6, 2010

Supply and Demand, it's the law!

I read a post on THR the other day on one of the interminable ammo threads discussing the .380 shortage, wherein someone commented that (paraphrased) "the supply will come back up even if new producers have to pop up, it's supply and demand."

WRONG!!! Do not pass Go, do not collect $200.

The law of Supply and Demand only says that quantity demanded and quantity supplied will reach an equilibrium price and quantity. An equilibrium has been reached. It's at the same quantity as before Obama but at a much higher price due to a massive increase in the demand curve. (If I could draw a graph on this blog, I would.) Due to the inelasticity of the supply curve, an increase in demand (demand curve moving right) results in a huge increase in price, (which, btw, also means suppliers are making much more money, ceteris paribus.) In fact, due to production schedules, .380 ammo supply is very close to perfect inelasticity. That results in the same quantity supplied and same quantity demanded which defines equilibrium at the same quantity as before, but at a much higher price. To wit, a 50 round box of .380 is about $30-35, whereas pre-General Secretary Obama, it was $15-18 per box. See how that works? Increase in demand creates shortages, which drives up the price, which is too high for some people so quantity demanded at the new price point falls, until equilibrium is reached. Either there will be .380 on the shelves or the price will continue to climb until there is.

Of course, if there are excess profits in the market that will entice new entrants to the market, but I won't go into barriers to entry, factors of production, etc. I could talk about it all day, but I'm not typing that much. Plus I've heard rumors (unsubstantiated, of course) that economic theory discussions aren't that interesting to everybody. ?!?!? Yeah! I couldn't believe it, either!

So, in short, can we all just agree that if you are making a comment about the economy or society in general, and you don't know the difference between demand and quantity demanded, supply and quantity supplied, and can't explain the mechanism to reach equilibrium, then you are not allowed to make the offhand comment, "it's supply and demand." It doesn't make you sound wise or makes you sound like an idiot with nothing to offer but a sound bite. A sound bite you probably don't understand.
Happy shooting,