No. 200 · Strategy · Economics
Supply and Demand
Prices rise when more people want something than there is to go round, and fall when there is plenty.
In the Almanac
“The dot-com bubble”, 1999–2002 · “Instacart”, 2020
Both stories in full, three ways to use it and where it misleads.
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Questions
What is Supply and Demand?
Supply and demand explains how prices are set: when demand rises relative to supply, prices tend to rise; when supply rises relative to demand, they tend to fall. It explains surging delivery fees during the pandemic, cheap fruit at harvest, and expensive tickets for popular concerts.
How do you use Supply and Demand?
Time purchases for when supply is high and demand is low, like winter coats in spring. In your career, build skills that are in high demand and short supply, and use that position when negotiating. When planning ahead, ask how demographic or technological trends may shift the balance.
When does Supply and Demand matter?
Supply and Demand is one of the 56 mental models for strategy, the situations where you ask: How do I win when others want the same thing? Within that, it belongs to “How markets grow and tip”, alongside Crossing the Chasm, First Mover Advantage and Flywheel.
What is an example of Supply and Demand?
Two stories show it at work: The dot-com bubble (1999–2002) and Instacart (2020). Both are told in full in The Mental Models Daily Almanac, which has two stories for each of its 365 models.
Which mental models are related to Supply and Demand?
Scarcity, Mr Market and Arbitrage. Supply and Demand itself comes from economics.