Barbies and Swifties and gasoline prices

A Lesson in Supply and Demand

Barbies and Swifties and gasoline prices: Lessons in supply and demand

There’s an old joke… if you want to train an economist, teach a parrot to say supply and demand. Anytime someone asks me a question, I immediately think about supply and demand. I might even mentally or physically draw a graph. But you can learn supply and demand without drawing the graphs.

So, let’s look at the burning questions of the day: Why is the price of tickets to see Taylor Swift in concert so high ($215 on average for initial-sale tickets and $1425 for resale tickets, according to Billboard), when the price to see Barbie is what we’d normally expect to pay for a movie ticket ($12-$15)? On a given day, Taylor Swift can only perform once in one venue. In the US, Ms. Swift performed at 52 locations with an average attendance of 50,000 people. In addition, tickets to Taylor Swift concerts (and other popular performers such as Olivia Rodrigo) are sold by one company, Ticketmaster, giving the company control over both initial ticket sales and resales, according to 404 Media. Barbie was shown several times in one day and in hundreds of theaters across the globe. In North America, Barbie was shown in almost 4200 locations. If you don’t like the price at one theater, you can find a better price at another. Or, for many of us, there is an acceptable substitute—we can watch the movie at home (where the rental price is $25 on Amazon Prime, about the price of two movie tickets), taking whatever breaks we want when we want to.

Barbie doesn’t need to rest either. As long as the movie is still popular, she will continue to be on the big screen and then on the small screen in people’s homes. Margot Robbie spent weeks portraying Barbie, but she doesn’t have to spend that amount of time again until her next movie. Taylor Swift not only needs to rest, she also needs time to write new songs and create new albums, so she can be ready for her next series of concerts. The quantity of Taylor Swift tickets was limited to approximately a few million tickets in North America, and although that might seem like a lot, the Barbie Movie sold billions of tickets. Since there was no reason to resell Barbie movie tickets, prices didn’t change. But for Taylor Swift tickets, prices increased as some fans gave up their seats and resellers started selling tickets to the highest bidders. This example of the limited quantities of Taylor Swift tickets compared to the higher quantities of Barbie tickets shows how supply affects prices.

The next burning question is about gasoline prices. Why do they rise in summer? Most of us accept the prevailing wisdom that gas prices rise in summer because more of us take long trips, so the demand is higher. Nearly half (45 percent) of all adult Americans were planning a road trip in summer 2023 according to CNBC. In addition, world demand is rising. according to OPEC (The Organization of Petroleum Exporting Countries).

And while that may be a factor, another more important factor is that oil refineries work harder and produce less when it’s hot. They are especially less productive when summer temperatures are above 100°F for more than a few days. Given the hot summers we had and that most oil refineries are in the Gulf Coast, these hot summers caused most refineries to produce less. In early September, Saudi Arabia and Russia voluntarily cut oil production, further reducing the supply, according to Reuters, but according to Marketplace.org, they over corrected. They assumed demand would stay high, but it isn’t. Again, the story is about supply. But demand matters too.

And what about home prices? We know prices shot up when the pandemic hit as businesses switched to remote work. Many people moved away from big cities to smaller ones. This increased the demand for homes in areas with more limited supply. In addition, as interest rates rose, homeowners became reluctant to sell their homes and take on a new mortgage with a higher interest rate.

Another problem with housing prices was the increase in demand by institutional buyers. These buyers planned to turn single family homes into rental properties. For instance, according to the Atlanta Journal-Constitution, institutional buyers bought one in every three homes for sale in the Atlanta metropolitan area. Interest rates were low in 2021, and prices were moderate in most of the Atlanta area.

In 2021 when we started looking, we not only had to look further out, but we also lost three homes to all-cash offers. Demand by homeowners was rising. Prices rose 20.3 percent from April 2021 to April 2022, according to Roofstock, a company that promotes individual and institutional investments in housing. Here the limited supply had an impact but increases in demand were most important.

And, you learned all about supply and demand without drawing a single graph, but I’ll be happy to draw one for you if you like.

PS: Taylor Swift’s concert movie is open in theaters now, so if you couldn’t make it to the concert, here’s another chance.