A 9 Minute Read.
I don’t know if you remember the pandemic toilet paper shortage. I was between paychecks at the time, and watched in horror on the TV News the grocery store shelves empty out of Charmin Ultra Soft, Scott Comfort Plus, Angel Soft, Seventh Generation. You name it, the toilet paper was going going gone and I was broke, and my paycheck was scheduled not to hit for a couple weeks.
This is basic supply and demand economics 101.
Summary of Supply and Demand Relationships
- When Demand Increases:
- If more people want a product (high demand), prices usually go up because sellers know people are willing to pay more.
- When Prices Go Up:
- If prices go up, some people may decide not to buy the product anymore, so demand can decrease.
- When Supply Increases:
- If there’s a lot of a product available (high supply), prices usually go down because sellers want to sell more and attract buyers.
- When Supply Decreases:
- If there’s less of a product available (low supply), prices usually go up because there are fewer items to buy, and people still want them.
Putting It All Together:
- High Demand → Higher Prices: More people want it, sellers can charge more.
- Higher Prices → Lower Demand: Some buyers might back off if it’s too expensive.
- High Supply → Lower Prices: Lots of the product available, sellers lower prices to attract buyers.
- Low Supply → Higher Prices: Not enough of the product, sellers raise prices because people still want it.
The Balancing Act of Supply and Demand
The interplay between supply, demand, and prices is all a balancing act.
Supply and demand are always trying to find that sweet spot of balance, with prices serving as a signal for both consumers and producers. When one side changes, it triggers reactions on the other side until a new equilibrium is reached. This dynamic is what keeps markets functioning smoothly (most of the time!).
Market Equilibrium Explained
The point where the amount of a product that consumers want to buy (demand) equals the amount that producers are willing to sell (supply) is called the market equilibrium. At this point, prices are stable.
If demand increases (more people want to buy), it pushes prices up. Higher prices can discourage some buyers, leading to a new equilibrium where demand matches supply again. Conversely, if demand decreases (fewer people want to buy), prices may drop. Lower prices can encourage more people to buy, adjusting demand back to match supply. If supply increases (more of a product is available), prices typically fall, which can encourage more buyers. This again shifts the market back toward equilibrium. If supply decreases (less product available), prices rise, which can lead to fewer buyers until the demand adjusts again.
External Factors Affecting Balance
Several factors can disrupt this balance of course.
- Economic Conditions: A recession might lower overall demand for many goods, while a booming economy might increase demand.
- Trends and Fads: A new product or trend can suddenly increase demand, requiring suppliers to respond quickly.
- Supply Chain Issues: Events like natural disasters or political instability can disrupt supply, impacting prices.
The Role of Perception
Perception also plays a crucial role in the dynamics of supply and demand, influencing consumer behavior, producer strategies, and ultimately market prices.
If consumers perceive a brand or product as high-quality, they may be willing to pay more for it, which can increase demand regardless of the actual supply. For example, luxury brands often create a perception of exclusivity that drives up demand, even when the supply is plentiful.
If something becomes trendy (like a specific sneaker or gadget), consumer perception can skyrocket demand overnight, sometimes leading to shortages even if supply hasn’t changed much. Think Cabbage Patch dolls.
- Future Price Expectations: If consumers believe prices will rise in the future, they might buy more now, increasing current demand. For instance, if people anticipate a rise in gas prices due to geopolitical events, they may rush to fill up their tanks, which can temporarily raise prices. And I’ve actually seen where people aren’t just filling up their car tanks, but fill up those spare red gas tanks. Or do you remember Beanie Babies?
- Fear of Shortages: Similarly, if consumers perceive that a product will soon be in short supply (like during a crisis or a natural disaster), they may panic-buy, causing demand to surge unexpectedly. This is going right now with toilet paper again—not because of Covid but because of a port strike.
Market Signals and Influences
Never mind that toilet paper is an American made product (for the most part) and is in no way affected by the port strike. It is the general public perception that is driving the shortage.
- Market Signals: Producers rely on perceived demand to guide their supply decisions. If they perceive high demand based on sales data or market trends, they may increase production, leading to higher supply and eventually adjusting prices.
- Perception of Competition: If producers perceive that competition is increasing, they might lower their prices to retain customers, even if their actual supply levels remain unchanged.
- Media Influence: Media reports can shape public perception about product availability and price trends. If the media covers a story about a shortage (even if exaggerated), it can lead to panic buying, which can imbalance supply and demand.
- Social Media Trends: Influencers can drive demand through perception. If a popular influencer promotes a product, their followers might perceive it as must-have, increasing demand even if the product’s supply hasn’t changed. Here in Dover, for example, Elizabethkh18 posted a TikTok that saw 23.5 thousand views, and the following Monday, The Noodle Bar sold out of their bubble tea in an hour.
- Scarcity Principle: People often desire things that are perceived as scarce or limited. If a product is marketed as a limited edition, demand can spike due to the fear of missing out (FOMO), leading to higher prices.
- Anchoring: Consumers can also be influenced by initial prices they encounter. If a product was once priced high but then drops, consumers might perceive it as a bargain, increasing demand even if the product is still overpriced compared to its actual value.
The Unique Case of Real Estate
Anchoring, by the way, does not necessarily work in real estate. If you initially price a house too high, and then drop the price, the perception is that something is wrong with the house, and demand for that home then drops as well. This supply and demand thing is not scientific. It’s really rule of thumb, or what we’ve observed in the past has for the most part held true.
Consumer Behavior in Crisis
But, you had other weird things happen during the pandemic, like the incredibly low price of gasoline at the pumps.
The drop in demand gasoline, coupled with an unexpected increase in supply, led to a collapse in crude oil prices and subsequent impacts on prices for refined petroleum products. On Monday, April 21, 2020, the price of U.S. crude oil turned negative for the first time in history. This forced producers to pay buyers to take the barrels that they could not store due to the oversupply of oil.
And while gas prices dropped and dropped and no one had anywhere to go, I continued to worry about how I was going to wipe my butt. The store shelves got emptier and prices surged to the point where grocery stores began seeing lawsuits filed against them for price gouging.
The Counter asked the question “Where is the line between basic laws of supply and demand and predatory price hikes that hurt poor shoppers the most?”
As consumers, we often forget that grocery stores exist not just to provide food and toilet paper, but to make a profit. Is a high price markup really price gouging, or is it simply a response to current market conditions? While it’s true that higher prices may prevent low-income shoppers from purchasing essential items like toilet paper, keeping prices artificially low through anti-gouging laws allows wealthier consumers to hoard more than they would at a higher price point.
Exploring Alternative Solutions
And because I had zero money in my checking account at the time, because I was waiting for my paycheck, I started window shopping on Amazon for bidets. At least, no one seemed to be buying the bidets. You didn’t hear about a bidet shortage on the news.
When my paycheck hit, I bragged to my siblings about the recently acquired bidet. My sister immediately called me “Soggy Butt,” and my brother said, “Ooo-la-la, fancy.”
Me considering a bidet as an alternative to toilet paper highlights the way we turn to substitute goods when our usual favorites become scarce or too pricey. The lack of toilet paper during the pandemic caused me to see bidets as a viable option—illustrating that demand isn’t always set in stone. It also points to a fascinating dynamic between necessities and luxuries. Toilet paper is essential, so it’s demand tends to be inelastic. We need toilet paper, come hell or high water, so to speak. When there’s an empty shelf or a steep price hike, our minds start wandering to what might have previously felt like a luxury. My brother dismissed the bidet as frivolous—oo-la-la, he said—but the bidet suddenly seemed pretty appealing when I was stuck with no toilet paper.
This whole scenario underscores how our consumer behavior shifts in response to crises. Panic buying leads us to seek out alternatives we might never have considered in a stable market. It’s a clear demonstration of how elasticity helps us make sense of the sometimes chaotic nature of consumer demand, especially when we’re scrambling for solutions.
Our willingness to embrace alternatives like bidets showcases the fluid nature of demand in response to changing supply conditions, reminding us that even in the midst of chaos, the market will find a way to balance itself.
In the ever-changing landscape of supply and demand, the pandemic toilet paper shortage stands as a vivid example of how quickly consumer behavior can shift in response to perceived scarcity. The dynamics we’ve explored—how demand influences prices and vice versa—serve not just as economic principles but as essential lessons for navigating crises. As consumers, understanding these shifts allows us to make more informed choices, while producers must adapt to the fluidity of market demands. Ultimately, this interplay reminds us that even in times of uncertainty, markets strive to balance, and our willingness to embrace alternatives can lead to unexpected solutions.
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