Which has more impact on the market, supply or demand?

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Hello! I am in a debate with someone about which has more impact on the market - supply or demand. I wanted to consult an expert to see which one is more impactful.


That's a bit like asking which of your two eyes is more important. As in many cases in economics, the answer to your question is: it depends. There are markets where, at a point in time, supply is more important. Take an interval of time when there is excess supply of labor: tons of people willing to work at the going wage and firms not having as many vacancies. In that setting, firms' demand for labor is dictating the labor market. But then, after the pandemic lost its fury, firms wanted to hire but few were willing to work at the going wages. In that latter setting, one can argue that labor supply was king. So, in general, there is no categorical answer to the question: it all depends.

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Last updated on October 6, 2022