Supply and demand

Wikipedia has more in-depth information on supply and demand.

Supply and demand are the market forces that determine the price of an item, unless it is affected by price control mechanisms. Supply is, essentially, the availability of an item on the market while demand is how much a player wants (and can pay for) an item. A supply and demand graph can be created to view a general price of an item. The curves on the below graphs show the quantity of a good supplied or demanded at a given market price (if there is more profit to be made, more will be supplied, whereas if a good becomes cheaper, more will be demanded). If there is no intervention on the market, it will naturally "balance out" at the equilibrium point.

SupplyEdit

The supply curve represents aggregate supply of shrimp in the economy.

DemandEdit

The demand curve represents aggregate demand of shrimp in the economy.

EquilibriumEdit

Supply and demand interact to reach an equilibrium point where the quantity and price have no tendency to change.

Changes to equilibriumEdit

Changes in supply or demand will change the equilibrium quantity and price. This idea is best shown by the day-to-day fluctuations in the Grand Exchange market price.

An increase in supply (shift of the supply curve to the right) will cause the equilibrium quantity to increase and the price to fall. This may occur due to a Double Fishing XP week which will increase the number of fishermen, increasing output and hence supply to the market. Conversely, a decrease in supply (shift of the supply curve to the left) will cause the equilibrium quantity to decrease and the price to rise. This may occur of fishermen change from fishing for shrimp to anchovies.

An increase in demand (shift of the demand curve to the right) will cause the equilibrium quantity to increase and the price to rise. This may occur if Jagex change shrimp so that they heal more LP per bite. Conversely, a decrease in demand (shift of the demand curve to the left) will cause the equilibrium quantity to decrease and the price to fall. This may occur if the healing power of shrimp are reduced, causing shrimp to be less appealing to players.

In the case of rare items, such as partyhats, there is no new supply entering the market, thus demand of the item is the factor which drives the price (although supply will steadily decrease due to partyhats being lost through characters quitting, deaths, etc., also gradually increasing price over time). As no new partyhats can enter the market, the supply is perfectly unresponsive to price changes and the quantity of partyhats on the market cannot increase. Thus, the movement of the supply curve can largely be ignored.