Basics of Supply and Demand

Picture this. You’re walking out of the Apple store. The new iPhone 17 just dropped, and everyone is rushing to get one. In your hands, you hold the latest model. It was expensive, but you know it’s worth it because there are so many new features that make your old iPhone seem dull in comparison. Everyone around you feels the same, eyes fixated on their new phones. Apple knows the impact that a launch can have on consumers because it knows that demand is very high, as everyone wants the latest model, whether it be because of the added features or merely just the status symbol that the brand carries. Either way, Apple knows to set a higher price because people are willing to pay more for it.

Your friend, on the other hand, has decided to wait until next year to purchase the iPhone 17. Soon, a year passes, and you are awaiting the drop of the iPhone 17. Your friend has just purchased the iPhone 17. Curious about why they waited until now, you ask them. They explain how, over time, as newer models are released, the demand for the older models decreases significantly. Not many people decide to buy the older version when there’s a newer model available. If you had the choice between the iPhone 16 and the iPhone 17, and money was not an issue, you would definitely choose the iPhone 17. Newer features are only part of the reason. You might feel your status in class would rise if you came with a brand new 17 model. Or imagine the opposite - showing up to class and being the only one with the iPhone 17 while all of your classmates are carrying the iPhone 17. Feels like you don’t belong, doesn’t it? Because of this, the price for the older models drops, and your friend was able to get the older model for a lot less than you paid for it. Maybe you should care less about your reputation in class…

On the other side of the equation is supply, which represents the amount of a product that producers are willing to sell at different prices. When the iPhone 16 was initially launched, the prices were high, and Apple sold higher amounts of the product due to the high demand. But as the excitement to purchase the latest model faded and the prices dropped, Apple limited production to avoid overstocking or losing money. This relationship between supply and price follows the law of supply, which states that producers are willing to supply more at higher prices and less at lower prices.

The point where demand and supply meet is called the equilibrium price. The equilibrium price occurs when the quantity consumers want to buy is equal to the quantity producers want to sell. As time passes, Apple adjusts the iPhone 16’s prices and production levels so that both customers and suppliers are satisfied.

Now imagine going back to school next year with all this knowledge. Your boastful classmate is holding the newly launched iPhone 18, but instead of pangs of jealousy, you remind yourself that you have made an informed financial decision and have saved a large sum of money to invest in your future.