Supply & Demand - A Commerce Journey - Ep8
How Hypixel Skyblock Teaches Supply & Demand Like a Pro
What is Supply and Demand? Well its one of the CORE principals of economics, it practically rules the world! without it nothing would have an established price. You might ask, why? well you've most definitely come to the right place! Today we'll be covering Supply & Demand Start to finish.
Q1: Why Does Ice Cream cost more in the summers?
Well, to understand this we have to go through the basics of economics and the Core Economic Problem; Scarcity.
Scarcity
What is Scarcity? Well Scarcity is the fundamental problem of having limited resources to satisfy unlimited human wants and needs or in other words, there aren't enough resources to satisfy the Needs & Wants of the people.
For Example: The people Want 50 apples, but the farmers can only produce 20 at a time! This is scarcity.
In Hypixel Skyblock Scarcity can be shown with very rare items, or items which are very very hard to obtain, many people want to get their hands on it but there aren't enough on the market!
Needs & Wants
What are needs and wants? How do we differentiate them?
Needs can be defined as the resources and products essential for our survival; clothes, shelter, food, etc.
Needs can be defined as the resources and products essential for our survival; clothes, shelter, food, etc.
Wants can be defined as the unlimited desire for goods or services that are not essential for survival but simply improve the QOL (Quality Of Life).
Examples:
IRL (In Real Life)
Wants: A brand new phone, new car, new house.
In Games
Needs: Shelter//Food
Wants: A brand new item or weapon to inflict more damage on monsters or something to make a process more efficient.
Supply & Demand
Supply can be termed as the total Volume or quantity of a product in the market at a given time for a given price.
Demand can be termed as the quantity of a good or service that a buyer is willing to buy at a time with a certain price.
There are two Laws:
- The law of Supply: This part of the law states that, generally, the quantity of a good or service that producers are willing to supply increases as the price of that good or service increases. This is because higher prices offer greater potential profits for producers, incentivizing them to produce and sell more
- The law of Demand: This part of the law states that, generally, the quantity of a good or service that consumers are willing to purchase decreases as the price of that good or service increases. This is because consumers have a limited budget and will tend to reduce their consumption of a good or service as its price rises.
The Invisible Hand: Drawing the curves that control the market
There are also two types of Curves:
Demand Curve:
This graph shows the representation of how much quantity of an item is demanded in a market with respect to price; When price is high, Quantity demanded is at a low, and when price is low the quantity demanded is at highest.
For example:
This graph shows the demand from 2020-Till-date
Supply Curve:
This graph shows the representation of the quantity of a commodity supplied in a market with respect to price; When price is high, Quantity supplied is high, and when price is low the quantity supplied is at a low as well.
For example:
The above is a representation of Price vs Supply, you can see price very gradually going up (bullish outlook) and the supply follows slowly. People tend to wait for higher prices to sell to maximize profit.
Equilibrium Price And Quantity:
This shows the perfect price of a good (equilibrium) when demand and supply intersect. This is termed as "Equilibrium Price And Quantity" this is the state when the good is nor overpriced or underpriced and is trading at a fair value or at its intrinsic value.
Here,
- "S" indicates the Supply Curve
- "D" indicates the Demand Curve.
While this may look confusing, it is simply a graph plotted with
- Demand
- Supply
- Sell Price
- Buy Price
this can show the equilibrium, if we inspect this closely we can say that the item was trading at a reasonably fair price from 5-8AM; being very close to its equilibrium.
Why Prices Rise And Fall — The Shifters of Supply & Demand
Non Price Factors Affecting Supply & Demand:
Factors affecting the Demand Curve:
Income:
- Normal goods: Demand increases as income rises.
- Inferior goods: Demand decreases as income rises.
- Trends, advertising, or social influences can increase or decrease demand.
- More consumers → demand increases.
- Fewer consumers → demand decreases.
- Substitutes: If the price of a substitute rises, demand for the product increases (e.g., tea vs. coffee or Bows vs. Swords)
- Complements: If the price of a complement rises, demand decreases (e.g., printers and ink or Cars and Fuel.).
- If consumers expect prices to rise in the future, current demand increases. (This can be for many reasons, in a game it might be due to an upcoming update.)
- Subsidies or tax cuts may increase demand, this runs true in games as well as in Skyblock we have a mayor system, each mayor has their own unique perks, when the mayor that reduces all taxes shows up the demand for more expensive goods increases drastically as people have to pay less in Auction taxes or Bazaar Taxes.
Factors affecting the Supply Curve:
Cost of Production:
- Higher the costs of production (e.g., raw materials, labour, land, etc.) → Supply decreases as it costs more to manufacture the items.
- Lower the costs of production → Supply increases as it is easier to make the item.
Technology:
- An increase in the level of technology makes production more efficient which makes it easier to produce goods and services which makes it so that supply increases. In a game when you increase the level of an item, it directly makes it easier to produce whatever the item is meant to produce which makes it easier to supply said item.
Number of Sellers/Producers:
- The more sellers → Supply Increases
- The fewer sellers → Supply decreases
In a game when more people are producing and farming a certain item the supply of the item is bound to go up.
Expectations of Future Prices:
- If sellers expect prices to go up in the future they might stockpile the good and decrease supply
- In a game when prices are predicted to go up people wait to sell at the peak rather than now to maximize profit.
Government Policies (Taxes, Subsidies, Regulation):
Taxes on producers → reduce supply.
-
Subsidies → increase supply.
-
Regulations can restrict or encourage production.
Weather/Climate (for agricultural goods):
-
Good weather → higher supply.
-
Natural disasters → reduce supply.
Elastic or Inelastic? How Prices Impact Our Decisions:
What Is Elasticity?
Elasticity is one of the most powerful tools in economics. It helps us answer questions like:
- “If the price of this item doubles, will people still buy it?”
- “Why do players rush for a sale on skins but still buy petrol no matter the price?”
In simple terms, Elasticity measures how sensitive buyers (and sellers) are to changes in price.
Price Elasticity of Demand (PED)
Definition:
PED tells us how much quantity demanded changes in response to a change in price.
-
If a small price change causes a big change in quantity demanded → Elastic
-
If demand barely changes despite price change → Inelastic
Examples:
- Real world
- Elastic - Movie tickets, clothes, luxury chocolate
- Inelastic - Petrol, Medicine, Salts
- In-Game
- Elastic - Cosmetic skins, rare weapons
- Inelastic - Entry fees, repair costs, essential gear
Example: Hypixel Bazaar Flipping
Let’s say Enchanted Blaze Powder is in high demand for crafting.
-
If a price surge barely affects buying volume → Inelastic
-
But if players stop buying and wait for a cooldown → Elastic
It depends on urgency, availability of substitutes, and player strategy.
Factors That Affect Elasticity:
For Demand:
-
Necessity vs Luxury: More necessary = more inelastic
-
Availability of Substitutes: More options = more elastic
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Time: Over time, demand tends to be more elastic
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Proportion of Income: Expensive items = more elastic
For Supply:
-
Ease of Production: Easy = elastic
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Spare Capacity: Extra resources = elastic
-
Time Period: More time = more elastic supply
Why Elasticity Matters in Both Worlds
Real World:
-
Governments tax inelastic goods (fuel, cigarettes) to raise revenue
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Businesses lower prices of elastic products to boost demand during sales
Game World:
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Game devs introduce limited skins or time-restricted events to play with elasticity
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Market flippers and traders exploit knowledge of price sensitivity to profit
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