Summary of the Article: A Supply-and-Demand Perspective
Supply is the amount of a product or service available in the market. Demand is the quantity of that product or service consumers want to buy. Equilibrium is the point where supply matches demand, determining the market price. Shifts in equilibrium occur due to changes in consumer preferences or technology. Elasticity measures how responsive demand or supply is to price changes. The characteristics of the sneaker resale market are discussed in the chosen piece, emphasizing the effects of supply and demand fluctuations on resale pricing.
The limited edition and celebrity collaboration shoes available in this market are a supply that meets the demand of sneaker collectors and fans (Marino, 2023). Factors like manufacturing volumes and supply chain problems affect the availability. Regarding demand, sneakerheads and collectors who are ready to spend more on a pair of shoes are driving the market. As a result of things like stimulus money and loose monetary policy, demand skyrocketed during the COVID-19 period.
Analysis of Supply, Demand, and Market Dynamics
Initially, the market was marked by tremendous demand and little supply, which resulted in very high equilibrium prices. Changes in macroeconomic circumstances, such as higher interest rates, also contributed to less speculative investment in the market, which affected the equilibrium. Consequently, in 2022, the average price return went negative, signaling a change in equilibrium toward lower prices, and the price of specific shoes fell (Marino, 2023).
Application of the Supply-and-Demand Model to Real-World Context
The report implies that the price elasticity of demand for these shoes has decreased. As prices have normalized, customers previously ready to pay substantial premiums have become more price-sensitive. These results are consistent with a price-inelastic demand at higher prices and a price-responsive demand at lower prices.
The initial spike in sneaker prices may be explained by the market model of supply and demand, which attributes the increase to strong demand and little supply. This also explains the price drop due to supply chain concerns being fixed and macroeconomic conditions shifting, which led to less speculative investments (Marino, 2023).
Limitations of the Supply-and-Demand Model
However, cultural and fashion trends are essential contributors to the demand for these shoes, and they are not well accounted for in the model. Sneakers are more than simply a commodity; they have a social and symbolic weight that the traditional supply-and-demand model cannot account for.
Reference
Marino, K. (2023). Sneaker resale prices are falling to earth. Axios. Web.
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