The last category of Unexpected Consequences I want to show you is the scenario of Constrained Supply.
There are two different causes of Constrained Supply
1)The first is collusion by Suppliers – this is often called a Cartel. It is a planned reduction by a group of Suppliers in the quantity being supplied.
The classic example is the “Oil Shock” perpetrated by OPEC in the 1970’s.
You don’t think that an iPhone really costs Apple $1000 to manufacture, do you?
2)The second is a short term increase in Consumer Demand – a time frame short enough that the only supply that is relevant is the actual supply on hand.
The classic example is what happens to the demand for “Must Have” toys like the Cabbage Patch dolls during the Christmas season.
