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Business in Action

ebay - supply and demand in action

 

(Example of supply, demand and the market mechanism)

It's interesting that some people have trouble with the concept of supply and demand when we are surrounded by it daily.  Just looks at ebay.  

From a demand point of view for a normal product, as the price rises less people are able and willing to demand it - there would be a very high demand for a U2 concert ticket as 2 but much less demand at 200 - this is because we gain less marginal utility as the price rises and the opportunity cost (what we could do with the money instead) is higher. Consequently the demand curve slopes downwards from left to right.  (Check out the spideybiz glossary if you need to.)

From a supply point of view, at 2 very few people (suppliers) will be willing to offer a U2 ticket for sale at 2 but at 200 there will be many more who would be willing to offer their tickets for sale, therefore the supply curve will slope upwards from left to right.

Equilibrium will be determined by the number of suppliers willing to sell at a certain price and the number of buyers who have effective demand at that price

Any shift in the demand curve to the right (perhaps caused by promotion such as an advertising campaign) will cause the price to rise and therefore a change in the equilibrium point.

So the next time you are bidding on ebay you are helping Adam Smith's 'invisible hand' do its magical work.

Questions:

Business Studies:  To what extent is ebay a good 'shop window' for a small business. 

Economics:  Consider the variety of factors that could cause a shift in the demand curve for a product of your choice being sold on ebay.  What factors would shift the supply curve?

 

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