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Topic: James Surowiecki

Law of Supply and Demand is Not Always Followed in Business

 

Are there any flaws in the economic theory of supply and demand?

Here is a quick overview of the economic theory of supply and demand.  As demand rises, prices go up.  As demand declines, price declines.  So when a lot of people want “Beanie Babies”, people will pay outrageous prices (price increases) because so many people want them (demand increases.)  For the opposite, think about the price of “Beanie Babies” now.  So are there instances where people pay less for a popular item as the supply of that popular declines?

“The Wisdom of Crowds” by James Surowiecki provides an example where the laws of supply and demand are NOT followed.  Movie tickets.  Movie goers pay the same for a ticket on opening night (high demand)as they do on the closing night (low demand.)  Why is that?  Movie theaters recognize supply and demand by offering cheaper matinee prices.  Aren’t movie theaters losing revenue because they are not following the laws of supply and demand?  The die hard Star Wars fan whose been camping outside for three days dressed up like Darth Vader would definitely pay more than $12 to see the movie on opening weekend. «Read the rest of this article»

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