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This comic pokes fun at the idea of supply and
demand and visualizes what could happen in the absence of our normal market
situation. If it is not already clear, a very thirsty man is
crawling towards a lone beverage salesman in the middle of the desert. Obviously the demand is very high for the lemonade
and the vendor being unopposed leads to a low supply and also demonstrates
price elasticity (percentage change in quantity demanded dived by percentage
change in price). Price elasticity measures how much the quantity
demanded of a good changes when its price changes. In this case the lemonade would not have “elastic”
demand as it would normally have in everyday life. In a normal situation, if you went to the
convenience store and made your way to the drink cooler only to find the
lemonade you wanted was $200 a bottle, you would likely swap the lemonade
(substitution effect) for a more affordable beverage. In this instance lemonade would have a very
elastic demand because it has substitutes and is not a necessity. In the world of this political cartoon, lemonade
has suddenly became extremely inelastic because it is now a necessity for the
consumer and therefore the demand will remain constant regardless of the
exorbitantly high cost and is immune to the income effect. The size of the population generally has an
obvious effect on the market (i.e. California’s population is 40x larger than
Rhode Island’s therefore the state has 40x the amount of automobile purchases.)
but the curve in this situation is basically not existent since it is stuck at
a 1:1 ratio. One characteristic of supply and demand that this
comic plainly illustrates is called “special influences.” For example, the snow plow market in Utica, NY is
probably rather strong (during the winter season so this is a special influence
within a special influence), while in Miami, FL the snow plow market is not
very strong and probably never will be. The comic shows us a very special influence, a
dying and dehydrated man will pay any price demanded to get his hands on the
lemonade. While it may not seem like it at first glance,
this situation has perfect market equilibrium. Every single consumer in this market and single is
the key word…is demanding lemonade. Since the lemonade man clearly has the supply
needed and only a single jug of lemonade to sell, there is no extra pull on
either side of supply or demand. This situation goes to show that, there is a lot
more to supply and demand than one may think and that we should be grateful to
have the type of market we do where (generally) the items we need are always in
high supply and luxury items are also readily available. Moral of the story, if you decide to visit the
desert, bring some cash.
--Adam Keith
I thought this cartoon was really good and visually defined the way supply and demand work very well. Supply and demand are very key and important macroeconomic concepts. It is a simple picture that makes it easy for the viewer to understand its message. When there is something very desirable, lemonade, scarcely available, as it would be in a desert, the person selling this scarcely available, very desirable product can charge a price that is much higher than the product is actually worth. On the supply and demand curve, the demand curve would shift greatly to the right, because of its very high demand. The supply curve would shift greatly to the left, because of the low supply of the lemonade in the desert. Together, this causes another great increase in the price of the good, even though a glass of lemonade is not nearly worth two hundred dollars.
ReplyDeleteAnother aspect that this cartoon does not show would be from the prospective of the vendor. In this very dramatic hypothetical situation, the lemonade vendor in the desert is likely going to have a very small number of people coming by his stand, and while he is the only stand there, allowing him to charge two hundred dollars a cup, a person wondering through the desert is very unlikely to have two hundred dollars in disposable income to purchase the lemonade. The vendor, even though he is in a position of monopoly power, still must sell his product at a somewhat reasonable price so that consumers can afford the product and he can make a profit. If not he will have very low sales and will actually lose money. Applying this concept to a real-life situation, it is important for market leaders, who typically charge higher prices for their goods, not charge to high of a price because people will not see their product as being worth the high price and will buy from the producer’s competitors. That is an example of how the market dictates prices of goods and services preventing prices from becoming unaffordable.