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“Supply and demand” are two of the most well-known words in the subject of economics. Simply put, “supply” is the amount of something that is available, or can be made available, to consumers. “Demand” is how much consumers want or need a product. When there is more supply than demand, prices drop to get consumers to purchase the excess supply. When there is more demand for something than there is supply available, prices increase. There are two reasons for this – one, there could be a shortage of the product, and the retailer will likely need to pay a lot to re-stock it; and/or two, the retailer can simply increase their profit margins by increasing the price, as people are willing to pay for it. On the flip side, if the price of the product increases too much, demand will decrease, which will once again put the supply and demand at an equilibrium (Rittenberg & Tregarthen, 2009).
A popular time of year where we often see supply and demand come into play is the holiday season, starting with Black Friday and continuing all the way through after-Christmas gift returns and exchanges until approximately New Year’s Eve. Every year, there seems to be some new “must have” item. Often, it’s a toy. Kids learn about it at school or from television, they talk about it with their friends, and then they pressure their parents into getting it for them. (Sometimes, the parents can be just as guilty as the kids when it comes to consumerism, however – a parent might decide that their child must keep up with the Joneses, and have the latest and greatest toy or electronic device.) This sends the parents into a tizzy trying to track down the item in time for the holidays, while thousands – if not millions – of other parents around the country are doing the same thing. Consequently, the demand for this product becomes very high, and as stores begin to sell out frequently, the supply is very low. We saw an example of this recently, in December of 2016, when the phenomenon of “Hatchimals” began to make its’ way across North America – and even some other parts of the world!
“Hatchimals” are furry, robotic, interactive animals that hatch from an egg that the owner must rub to facilitate the hatching process. Additionally, the creatures continue to “grow up” and increase in size as time passes. These are truly revolutionary in the world of children’s toys, and as such they come with quite a revolutionary price tag at approximately $60 each! That didn’t stop many parents from hunting this toy down and snatching it up – but many opportunists began finding and buying Hatchimals in bulk, and turning around to sell them on sites such as eBay for triple the price. Elasticity began to come into play here, as many parents were not willing to pay the inflated prices for the toy, and consequently stopped searching for them altogether. The after-market demand from sites like eBay and Amazon decreased greatly as a result; However, the demand to buy the toy at retail-value from stores like Target and Walmart remained on the rise (Peachman, 2016).
Spin Master, the creator of the Hatchimal toy, claimed that they knew the toy would be popular – especially around the holidays. They produced extra Hatchimals to meet this expected demand. However, they stated that they didn’t expect the response to be so overwhelming, and consequently, they struggled to keep up with consumer demand. Business cost increased for Spin Master, as they had to use airfreight to rush deliver the remaining Hatchimals from China so that they could be distributed to retail stores before the Christmas holiday. While part of the reason for the increased demand was sensationalism, there was another issue: the toy was appealing to a demographic larger than Spin Master anticipated. They had assumed the toy would appeal to children in the 5-10 year-old range, but once Hatchimals hit the market, the appeal stretched from children 3-12 years old (Peachman, 2016).
The demand and price point of these toys did not seem to deter most parents from at least trying to obtain one for their child, however. This is where consumer choice and opportunity cost came into play. Some parents chose to forgo the hassle of driving hundreds of miles collectively, checking all of the stores within a certain radius, in exchange for paying three times the price on a second-hand retailer website, such as eBay. Other parents refused to pay that high of a price point in exchange for continuing to fight for the toy at big-box stores, and the article I chose even talks about a group of parents standing outside of the Target store entrance for several hours in the 20 degree cold weather in order to obtain one on delivery day. Some parents took a chance and entered raffles for the Hatchimals on Facebook by pitching in $10 with approximately a dozen other parents. Most were unsuccessful (Peachman, 2016).
Fast forward to Christmas season, 2017: Hatchimals were a word barely uttered, and now, most children approaching five or six years of age would likely only have a vague idea of what I was talking about if I asked them if they like Hatchimals. The craze has worn off, and the supply of Hatchimals seems to have reached an equilibrium with the price point – most are retailing for between $45 and $50 at Target, Walmart and online. By the time the holiday season rolls around again this year, this entire process will repeat with a new “must have” item.
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