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The Day Economics Died: What Happens When Supply and Demand Stop Working
Manage episode 491291632 series 2911349
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Episode Description
Exploring whether the fundamental economic law of supply and demand still applies in today's complex market environment, or if external factors have essentially "repealed" this basic principle.
Key Points Covered:
- Traditional Supply & Demand Theory
- Classic principle: higher supply = lower prices, higher demand = higher prices
- Historical application in stock markets and retail sales
- Foundation of free market economics
- Real Estate Market Contradictions
- Increased inventory in recent months but prices continue rising
- Interest rates jumped from 2.5% to 5.5% yet demand persists
- Traditional theory suggests prices should fall with more supply
- Why Supply & Demand May Be Breaking Down
- Prices can't freely float due to external constraints
- Labor cost pressures and supply chain disruptions
- Government price controls and anti-gouging regulations
- Rent controls and fuel price regulations
- Fixed Cost Reality for Businesses
- Car dealerships maintaining markups despite lower demand
- Building contractors spreading overhead across fewer projects
- Small businesses (candy shops) raising prices to cover fixed expenses
- Service companies facing labor shortages despite reduced demand
- Volume Economics Challenge
- Lower sales volume requires higher per-unit profits
- Fixed expenses (rent, insurance, taxes) don't decrease with demand
- Luxury goods (Rolls Royce vs Toyota) pricing models
- State parks closing beaches due to lifeguard shortages
- Historical Context
- Soviet Russia price controls leading to empty stores
- Two-year waiting periods for basic goods
- Economic stagnation from government intervention
- Modern Market Restrictions
- Government regulation limiting price flexibility
- Supply chain bottlenecks
- Labor market constraints
- Regulatory compliance costs
Conclusion
Supply and demand still exists but operates with significantly reduced effectiveness due to external economic constraints and interventions.
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