Watch the Red Shoes – An Introduction to Supply and Demand

Supply and Demand Basics

This thoughtful ad shows how an IPad can replace the use of paper (for drawing, sticky notes, printing and reading). However, even as wonderful ass a tablet is, there are limits to how much paper use can be reduced. How does an increase in demand for a substitute good affect the demand for the original good?

Dwight buys all of the season’s hottest gift the “Princess Unicorn” doll, from the local stores and then charges desperate parents $200 for each doll. Because holiday gifts are needed in the short run, demand is often inelastic. Combine that with a gift that is in short supply and sellers (Dwight in this case) have extraordinary market power.

Alan is ashamed that he can’t afford to buy Lyndsey a birthday present, so he gets creative and starts selling massages at the local mall. He discovers that his price is too high and encounters stiff competition which forces the price charged down. It is a nice example of how the price is forced down to marginal cost in competitive markets.

Hudsucker Proxy – this film chronicles the introduction of the hula hoop, a toy that set off one of the greatest fads in US history. According to Wham-O the manufacturer of the hoop, when the toy was first introduced in the late 1950s over 25 million were sold in 4 months. One scene from the movie clearly illustrates the difference between movements along the demand curve and a shift of the entire demand curve.
The Hudsucker corporation has decided to sell the hula hoops for $1.79. We see the store owner leaning next to the front door waiting for customers to enter but business is slow. The movie cuts to the president of the company sitting behind a big desk waiting to hear about sales of the new toy. It is not doing well. The store lowers the price to $1.59, $1.49 and so on, until finally it is FREE with any purchase. Even this is not enough to attract consumers. The store owner throws the hula hoops into the alley behind the store and one of the hoops lands at the foot of a boy on his way to school. He picks it up, tries it out and finds that he is a natural. When school lets out the children see him playing with the hula hoop. Suddenly everyone wants one and there is a run on the toy store. PREFERENCES HAVE CHANGED, AND OVERALL DEMAND HAS INCREASED. THE HULA HOOP CRAZE IS BORN. IN ECONOMIC TERMS, WE CAN SAY THAT THE INCREASED DEMAND HAS SHIFTED THE ENTIRE DEMAND CURVE TO THE RIGHT. The toy store responds by ordering more hula hoops and raising the price to $3.99, which happens to be the new market price after the increase, or shift, in demand.