The Dance of Supply and Demand: Why 'Need' is Never Fixed

One of the most fundamental lessons in economics is that demand is not a rigid, unchanging figure. Instead, it ebbs and flows with prices. What people 'need' adjusts based on what they must pay.

Consider a community that once had free electricity. When prices were introduced, usage dropped significantly as people became more mindful of consumption. This simple example shows that demand responds to cost.

On the supply side, producers are motivated by prices too. When prices rise, producing more becomes profitable, encouraging increased supply. Conversely, low prices discourage production. This interplay ensures markets remain flexible and responsive.

Take milk, a raw material for cheese, ice cream, and yogurt. If demand for cheese rises, milk prices increase, affecting other products that compete for the same resource. This competition among uses leads to price adjustments that balance supply and demand across related markets.

Prices thus act like a dance partner, guiding the movements of supply and demand in a continuous, fluid rhythm. This dance prevents waste and ensures resources flow to their most valued uses.

Next, we will examine what happens when governments interfere with this natural dance through price controls, and why such interventions often cause more harm than good.

Sources: Basic Economics by Thomas Sowell 1 , 2 , 3