Supply & Demand Equilibrium

The idea of supply and demand is often misunderstood as solely an economic concept, that only applies to the economic and financial areas. But this is not so. Ways to establish equilibrium of supply and demand are a fundamental driver of much else.

  • Stags fight for does in the deer rut. There is a shortage of supply of does for all the stags, so they viciously fight for what does there are. The results of the fighting determines the allocation of the does and an equilibrium is achieved.
  • Robins fight over territory. There is not enough space for all the Robins to have their own, so they fight each other for what is available. Again the results of the fighting determines the allocation of the territory and an equilibrium is achieved.
  • When water or food runs short on the savannah, then the predator species will risk attacking one another to preserve their access to what prey and water remains. When supply is in excess of predator demand, they will not tend to risk the dangers of injury by fighting other species.
  • Plants all need sunlight to grow and survive. In a given area there is a limited supply of sunshine to meet the demand. So some plants have evolved to grow taller and ensure they gain as much sunshine as possible, at the expense of others, increasing their supply. While others have evolved to survive and prosper in less sunshine, reducing their demand.

In modern human societies we tend not to physically fight for scarce resources within a society, although outbreaks do occur. Physical attacks are typically unlawful in our societies and only occur regularly in the unlawful criminal world, such as drugs gangs. However, we do physically fight between human societies as we have seen in the many wars down the centuries. We also haven’t waited for evolution to resolve all our supply and demand problems. We have developed societal Models to resolve the supply and demand equilibrium problem.

Within societies there are two distinct Models to resolve equilibrium of supply and demand:

  • A Command Economy. An authority, typically the Government and its central planning bureaucracy, will decide who gets what and how much. They regulate supply, often regardless of demand. This is normally done under a cloak of supposed fairness for all. Although in all cases those in charge tend to get more than the rest, and often much more. Not a fair and equitable resolution of the problem as is claimed. This can be seen in varying degrees in communist and strictly socialist governments. It rarely works outside a time of national emergency, and often creates more problems than it solves. This has been shown in the USSR, Venezuela and Maoist China. Often catastrophic supply problems occur and hardship and even famines are not at all unusual.
  • A Market Economy. At the other end of the spectrum a market pricing mechanism is used. Items in short supply escalate in price thus lowering demand and increasing supply, tending to bring supply and demand into equilibrium. Similarly in excess supply conditions the market price reduces so supply also reduces and demand increases, again tending to bring supply and demand into equilibrium. This is not a “fair” allocation as such, as those with more money are shielded while those with less money are not shielded. This system can be seen in capitalist societies which over time have proved more successful and able to raise living standards for all. Capitalist countries with a social “safety net” have historically performed best.

In both cases there is ample potential for abuse. In the first by those in authority, and in the second by suppliers forming cartels or monopolies to control the prices and corrupt the market pricing system.

In practice most western countries tend to adopt a mixture of authoritarian allocation of resources along with a market approach and social safety net where possible. They also mostly have laws against cartels and regulate monopolies that do naturally arise by innovation or other factors.

Supply and demand and the attainment of equilibrium are fundamental to not only how we live in human societies but also it pervades much else.

While we tend to think of things like political systems as fundamental building blocks of the way we live, they are not the foundational core issue. Much more fundamental is the way we choose to attain equilibrium between supply and demand for the resources needed for life.

It is on the attainment of equilibrium of supply and demand that political systems and much else is built.

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