Think Out Loud

Gregorio E. Baccay III, DPA

#Law of Supply and Demand

The recent issue on the spike of fish prices in Dumaguete City was alarming, thus, prompted
the concerned government agencies to hold a forum on the matter. As a result, the term Law of
Supply and Demand was popularized. In economics, this law is an economic model of price
determination in a market. The law of supply implies that when all else remains the same, if the price
of a kilo of fish rises, fish vendors will offer more volume of fish for sale; or if the price of a kilo of fish
falls, fish vendors will offer fewer volume of fish for sale. Looking at this principle, the issue was on
the volume of fish to be offered for sale. Given the factors of bad weather conditions and full moon
episodes during and after the holiday season, it can be assumed that there was low supply of fish,
therefore shortage occurred as the demand for fish was high during that period.

On the other hand, the law of demand applies that when all else remains the same, if the
price of a kilo of fish falls, people will buy more kilos of fish; or if the price of a kilo of fish rises,
people will buy fewer kilos of fish. In this case, why did the consumers continue to buy fish despite
high prices? Many of them were complaining yet buying. While it is a fact that there is a higher
demand of fish for consumption, consumers should know that every good has substitutes. A
substitute for a good is another good that can be consumed in its place. Sardines and dried fish for
examples are substitutes for fresh fish.

Following those discussions, three questions are to be considered in predicting price

changes: a.) does the event influence demand or supply? b.) does the event increase or decrease
demand or supply – shift the demand curve or the supply curve rightward or leftward? c.) what is the
new equilibrium price? Answers to those questions will lead us to a clear conclusion that: bad
weather condition and full moon episodes have influenced the supply of fish to decline which
caused the supply curve to shift leftward thereby resulted to the prices of fish to rise relative to the
increase in consumer demands.

In the end, consumers have to understand the situation and shall make better choices by
rationalizing on various alternatives or substitute goods. However, what puzzled me is the fact that
prices of fish outside the city were not as high as that of the latter. Could there be collusion?
Collusion by the way, is an overt agreement among oligopolists on what prices to charge and how to
divide the market. That I don’t know, how about you?

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For comments and reactions, please email me at gregbaccay@gmail.com