Unit 1: Supply and Demand - two different approaches

Thank you to Ben Cahill for this excellent article on Supply & Demand in action.....

As any good textbook (or website) will tell you, when producers seek to maximise profits, increased demand and the resulting higher prices are a signal to increase production. The first article is a classic example of this but the situation in the second is not quite the traditional textbook example!


The first article - "Hummus is conquering America" explains how increasing demand for hummus in the United States is leading tobacco farmers to change their crops in the new spring planting season. Hit by a long-term decline in tobacco sales, they are turning to the more lucrative (and much healthier) chick-pea that is the main ingredient in hummus. The article is full of great economics and is also useful for Business Studies teachers as well, with some insights on why the market for hummus is growing so fast in the USA.

The second article has the somewhat unusual headline of "Popular ice cream shop puts up prices to deter customers"! At first glance, it seems to support the traditional theory that a shortage will increase prices to a level of market equilibrium as the business realises it can maximise profits by charging higher prices. But the owner of the German ice-cream shop claims that this is not the case! His ice-cream is proving so popular (at the low price) that queues of people of up to 50 metres are waiting to buy it. This is drawing complaints from neighbouring businesses and the owner is worried that he might get shut down if the queues don't disappear. Hence the 35% increase in prices is to reduce "business to an acceptable level" and the most telling comment "The aim is not to make as much money as possible here." If true, then he obviously has goals other than profit maximization but the overall outcome is the same (if not the process) as predicted by the traditional theory!