demand and supply econs essay

Home — Essay Samples — Life — Career — The Importance of Demand and Supply in Economics

The Importance of Demand and Supply in Economics

• Categories: Career

About this sample

Words: 677 |

Published: Mar 20, 2024

Words: 677 | Page: 1 | 4 min read

Cite this Essay

Let us write you an essay from scratch

• 450+ experts on 30 subjects ready to help
• Custom essay delivered in as few as 3 hours

Get high-quality help

Verified writer

• Expert in: Life

+ 120 experts online

By clicking “Check Writers’ Offers”, you agree to our terms of service and privacy policy . We’ll occasionally send you promo and account related email

No need to pay just yet!

Related Essays

1 pages / 579 words

1 pages / 205 words

1 pages / 550 words

2 pages / 684 words

Remember! This is just a sample.

You can get your custom paper by one of our expert writers.

121 writers online

Still can’t find what you need?

Browse our vast selection of original essay samples, each expertly formatted and styled

Related Essays on Career

The occupation of a Chef is someone who preps and cook’s food in places where food is served. Challenges such as working at a fast pace and multitasking is what makes the occupation of a Chef so physically demanding. Being a [...]

As a college student, I have decided to pursue a career in social work. My interest in this field has been sparked by personal experiences and academic coursework, as well as a passion for social justice and advocacy. In this [...]

Physical therapy is a profession that intricately blends science, empathy, and human interaction. It is a field dedicated to improving the quality of life for individuals who are recovering from injuries, managing chronic [...]

The Career Leader Assessment is a valuable tool for college students to gain insight into their career interests, motivations, and abilities. This assessment provides a comprehensive analysis of an individual's strengths and [...]

To completely succeed in my career path, I have approached Miss Kate Perez who is the IT coordinator and development program assistant director in our State to provide me with necessary support and assistance. After series of [...]

Computer Engineering is a very precise and decently hard career to pursue.  Computer Engineering deals with the design of products for electronic computation and communication. These people who pursue this career focus on [...]

Related Topics

By clicking “Send”, you agree to our Terms of service and Privacy statement . We will occasionally send you account related emails.

Where do you want us to send this sample?

By clicking “Continue”, you agree to our terms of service and privacy policy.

Be careful. This essay is not unique

This essay was donated by a student and is likely to have been used and submitted before

Download this Sample

Free samples may contain mistakes and not unique parts

Sorry, we could not paraphrase this essay. Our professional writers can rewrite it and get you a unique paper.

Please check your inbox.

We can write you a custom essay that will follow your exact instructions and meet the deadlines. Let's fix your grades together!

Get Your Personalized Essay in 3 Hours or Less!

We use cookies to personalyze your web-site experience. By continuing we’ll assume you board with our cookie policy .

• Instructions Followed To The Letter
• Deadlines Met At Every Stage
• Unique And Plagiarism Free

Supply and Demand Essay

In economics, the terms “Supply” and “Demand” are of fundamental importance to the discipline because they are the factors that drive all other related activities of the economy. Argumentatively, although the field is broad and these two are like the pillars that hold together everything else in place, the exchange of goods and services from the seller side and the buyer’s side. Simply put, the demand covers the customer side while the supply side covers the seller’s side, who provide the goods or service. So, this, paper will discuss in detail the two terms and extensively cover what they mean in the context of economic transactions and how they relate. Also, the paper will seek to explore the shifts in demand and supply; because they are not static but are subject to changes of either going up or going down- for both depending on various factors that will form part of the subsequent discussions of this paper.

At this point, it is important to note while they are closely related, it is not automatic that an increase will one will cause the same reaction for the other. Each independently responds differently to certain factors. However, in a state of equilibrium, the shifts are similar where if demand, increases the seller responds also by increasing their goods or services(Bas, et al. 4). For each, the discussions will revolve around meaning, application in the real-life, and the relationship with the causal agents that leads to particular changes. The figure below shows the relationship between demand and supply that will guide the subsequent discussions.

Figure 1 Relationship between Demand and Supply

Demand in the field of economics refers to the total amount of goods or services that consumers are able and willing to pay for it when it is at that price. In practice, demand is usually different at each price level which is the main factor that influences the patterns of consumers’ behavior. The price is used as the reference point of explanation because it usually reflects the value of a product and its utility preference to the buyer. In particular, just how much is a customer willing to pay and what amount of the product or service do they want for it at that price is what demand is all about(Bas, et al. 11). In some of the cases, a customer attending a fair on a hot day may be willing to pay more for a glass of lemonade than if they had attended the fair when the weather was cold. So, demand is the total amount of product that a consumer will be expecting in return for money of a certain value.

At different prices, the quantity will change because of the different factors mentioned in the subsequent parts of the paper. From this example, it is clear that the demands thus also exist at different levels; the first is the market demand for the product itself in the economy and the second is the aggregate collective demand of all the products that exist in the market for that economy. In the first level, the focus is the product itself in the context of the consumer, and for the second, it is all the products that are present in that specific jurisdiction. A good example is a demand for a GTI muscle automobile in the US may be 15 % while the demand for all cars in the US is 56%. Therefore, in the first example, the particular product is assessed individually within the context of the market while in the second level it is all products that the same, i.e. cars, that are calculated.

Supply, on the other hand as aforementioned represents the other side of the economic transaction divide, the suppliers. The suppliers’ framework is overly broad and is used to refer to all such factors that are elements of production including labor, money, and companies that collectively produce the goods to the buyer. Supply: therefore, this definition refers to the total amount of goods and services that the supplier is willing to produce and offer to the market at a certain price (Moheb-Alizadeh and Handfield 5). Using the earlier example, now the seller of the lemonade at the fair is willing to make a certain amount of the drink for the market at a particular price. So, for example, if the fair is hosted on a sunny day, the price is higher and thus he or she may be willing to produce more lemonade for the fairgoers. However, on a cold day when the price of the lemonade is lower, he may only be willing to produce a lower amount of lower to reduce. The price is used as the central incentive in an economy that is why in both cases it is the principal elements that are used to define both supply and demand. As stated earlier, the movements are not static but rather shift according to different factors.

The shifts in the demand and supply of the goods and services for a particular product is dependent primarily on the prices of the inputs that are used in the production of the goods and services such as labor, raw materials, tariffs attached to the product and technical resources involved in the production. Similarly, for the demand for a good or service shifts according to the prices set for the product or service (Mankiw 54). When the prices are higher and other factors remain constant regarding the product, the demand reduces and when the prices reduce, the demand increases. From this point of view, it is accurate to hypothesize that demand and supply shifts according to how the prices move when all other factors remain constant.

Works Cited

Bas, M., et al. “From micro to macro: Demand, supply, and heterogeneity in the trade elasticity.”  Journal of International Economics , vol. 108, 2017, pp. 1-19, doi:10.1016/j.jinteco.2017.05.001.

Mankiw, N. G.  Essentials of economics . Cengage Learning, 2020.

Moheb-Alizadeh, H., and R. Handfield. “Developing talent from a supply–demand perspective: An optimization model for managers.”  Logistics , vol. 1, no. 1, 2017, p. 5, doi:10.3390/logistics1010005.

Cite This Work

To export a reference to this article please select a referencing style below:

Related Essays

Organizational change and design thinking, business franchise management, principles of health and safety for health professions, enterprise technology and innovation, crumlin market research, tesla inc. company, popular essay topics.

• American Dream
• Artificial Intelligence
• Black Lives Matter
• Bullying Essay
• Career Goals Essay
• Causes of the Civil War
• Child Abusing
• Civil Rights Movement
• Community Service
• Cultural Identity
• Cyber Bullying
• Death Penalty
• Depression Essay
• Domestic Violence
• Freedom of Speech
• Global Warming
• Gun Control
• Human Trafficking
• I Believe Essay
• Immigration
• Importance of Education
• Israel and Palestine Conflict
• Leadership Essay
• Legalizing Marijuanas
• Mental Health
• National Honor Society
• Police Brutality
• Pollution Essay
• Racism Essay
• Romeo and Juliet
• Same Sex Marriages
• Social Media
• The Great Gatsby
• The Yellow Wallpaper
• Time Management
• To Kill a Mockingbird
• Violent Video Games
• What Makes You Unique
• Why I Want to Be a Nurse
• Send us an e-mail

• Undergraduate
• High School
• Architecture
• American History
• Asian History
• Antique Literature
• American Literature
• Asian Literature
• Classic English Literature
• World Literature
• Creative Writing
• Linguistics
• Criminal Justice
• Legal Issues
• Anthropology
• Archaeology
• Political Science
• World Affairs
• African-American Studies
• East European Studies
• Latin-American Studies
• Native-American Studies
• West European Studies
• Family and Consumer Science
• Social Issues
• Women and Gender Studies
• Social Work
• Natural Sciences
• Pharmacology
• Earth science
• Agriculture
• Agricultural Studies
• Computer Science
• IT Management
• Mathematics
• Investments
• Engineering and Technology
• Engineering
• Aeronautics
• Medicine and Health
• Alternative Medicine
• Communications and Media
• Advertising
• Communication Strategies
• Public Relations
• Educational Theories
• Teacher's Career
• Chicago/Turabian
• Company Analysis
• Education Theories
• Shakespeare
• Canadian Studies
• Food Safety
• Relation of Global Warming and Extreme Weather Condition
• Movie Review
• Admission Essay
• Annotated Bibliography
• Application Essay
• Article Critique
• Article Review
• Article Writing
• Book Review
• Business Plan
• Business Proposal
• Capstone Project
• Cover Letter
• Creative Essay
• Dissertation
• Dissertation - Abstract
• Dissertation - Conclusion
• Dissertation - Discussion
• Dissertation - Hypothesis
• Dissertation - Introduction
• Dissertation - Literature
• Dissertation - Methodology
• Dissertation - Results
• GCSE Coursework
• Grant Proposal
• Marketing Plan
• Multiple Choice Quiz
• Personal Statement
• Power Point Presentation
• Power Point Presentation With Speaker Notes
• Questionnaire
• Reaction Paper

Research Paper

• Research Proposal
• SWOT analysis
• Thesis Paper
• Online Quiz
• Literature Review
• Movie Analysis
• Statistics problem
• Math Problem
• All papers examples
• How It Works
• Money Back Policy
• Terms of Use
• Privacy Policy
• We Are Hiring

Supply and Demand, Essay Example

Pages: 3

Words: 782

Hire a Writer for Custom Essay

Use 10% Off Discount: "custom10" in 1 Click 👇

You are free to use it as an inspiration or a source for your own work.

The everyday occurrence of buying a new car has profound lessons for the discipline of economics.  On the demand side, there are numerous factors that affect purchasing a new car.  For example, demand for cars might be influenced by changes in prices of substitutes: If the price for public transportation (whether for train, bus, or subway) or motorcycles decreases dramatically might lead to less demand for cars (Mankiw, 2001). That is because consumers can pay less money and still receive similar benefits.  Another key demand side factor is interest rates charged on car loans or the availability of credit.  Since a majority of cars are bought on credit, a reduction in interest rates would lower the cost of financing (and ultimately the car) making cars more attractive to consumers. By the same token, if the standards for credit availability were lowered, this might also lead to greater demand for cars.  A contraction in credit or higher interest rates would likely lead to a contraction in demand as the price of the car increases. Third, changes in advertising or fashion can affect demand via an individual’s preferences vis-à-vis car purchase.  For example, many car makers are making more energy efficient cars that have less of an impact on the environment.  Consumers that normally wouldn’t buy cars, or may consider other substitutes, may purchase cars deemed “environmentally friendly.” Or perhaps advertising that stresses cars made in the United States has a palpable impact on consumers and increases individual demand by moving the demand curve.  Lastly, consumer sentiment plays a key role in shaping demand for automobiles: During the depths of the global recession, demand for cars plummeted as consumer sentiment over the future, including the ability to make car payments, deteriorated. As the economy and consumer sentiment gradually improved, so did the market for automobiles.

There are three main factors related to the supply of cars (Baumol& Blinder, 2004).  The first factor is the price of inputs used in building cars.   Cars are composed of many parts that vary in price over time. If the prices of inputs increase, the manufacturer has to decide whether to raise the price of the car which may lead to decreased supply.  On the other hand, if there is a significant decrease in the price of inputs, the car manufacturer might be willing to supply more cars.  The second main factor in deciding supply is the market structure of the car industry.  Traditionally, the car industry is extremely competitive, particularly after car manufacturers from India and China have now started to export cars.  With an increase in the number of manufacturers, and arguably competitiveness in the car industry, manufacturers may choose to reduce supply in order to avoid the situation of unsold cars. On the other hand, if  there is an overall decrease in the number of manufacturers, other manufacturers may choose to increase supply to make up for lost production in the market.  The last main factor is the producer’s expectation in the production of cars.  For example, a producer may look at factors such as consumer demand and price in order to decide how many cars to supply in the market.  Future expectations are very important as car manufacturers typically make production decisions 1-2 years in the future based on existing trends.

Demand and supply for cars may also have an impact on complementary goods such as GPS tracking systems.  GPS systems are a complementary good because car manufacturers or consumers who purchase cars also purchase GPS systems.  Another complementary good for cars is gasoline.  Gasoline must be purchased in order for a car to properly operate.  Higher prices for cars may have an adverse impact on the quantity of gas purchased, especially during times of an economic downturn or high gas prices.  An increase in the price of gas may also influence the quantity and type of car purchased.  Due to the wide range of cars available, price elasticity plays a significant role in the type of car purchased.  For example, due to the segmented nature of the car market, lower-priced cars likely have a higher price elasticity of demand.  For example, if Ford raises prices too high on a lower-end model, consumers will likely simply purchase another type of car.  At the upper end of the car market, however, price elasticity of demand is likely quite low.  That is, if Mercedes raised the price of a car $5,000, it is not clear that a consumer would necessarily purchase a BMW instead.  This is because consumers at higher price levels are less sensitive to changes in price.

Mankiw, G.  (2001). Principles of Economics.   New York: Southwestern Press.

Baumol, W. & Blinder, A. (2004).  Microeconomics Policy.  New York: Southwestern Press.

Stuck with your Essay?

Get in touch with one of our experts for instant help!

Pre-Event Phase, Event Phase, and Post-Event Phase, Essay Example

Art and Artist Interpretation, Research Paper Example

Time is precious

don’t waste it!

Plagiarism-free guarantee

Privacy guarantee

Secure checkout

Money back guarantee

Related Essay Samples & Examples

Voting as a civic responsibility, essay example.

Pages: 1

Words: 287

Utilitarianism and Its Applications, Essay Example

Words: 356

The Age-Related Changes of the Older Person, Essay Example

Pages: 2

Words: 448

The Problems ESOL Teachers Face, Essay Example

Pages: 8

Words: 2293

Should English Be the Primary Language? Essay Example

Pages: 4

Words: 999

The Term “Social Construction of Reality”, Essay Example

Words: 371

Demand And Supply

Demand and Supply is the most important topic in A Level Economics as it provides the basic foundation for your future topics like Market Failure and Macroeconomic Policies in your Year 2. If you can master this topic well, it can also be used to explain almost any articles that you read on your Straits Times!

One huge problem that most students do not understand about Demand and Supply is the Shifts vs Movements of respective curves. A movement among the curves are caused Price Factor and respective Law of Demand and Law of Supply (refer to lecture notes) while a shift in the curves are caused by Non – Price Factors (refer to lecture notes). An example for a shift in demand for Apple iPhone could be:

• Change in Taste – more people are adopting iPhone because of it iconic symbol of being assiociated to cool and good support from the Apple Store;
• Increase in Price of Samsung Note – an increase in the price of close substitutes will result in a higher demand for Apple iPhones.

As you can see, both are not related to Price Factors.

The main purpose of learning both Demand and Supply will be to find the intersection of both curves and uncover the equilibrium price and equilibrium quantity of a commodity, say iPhone.

Many students mainly forget to illustrate the equilibrium price and equilibrium output on their drawn diagrams, resulting in poor relevance to their essay .

In the above illustration, the original equilibrium price of iPhone is at $600 and equilibrium quantity is at 1 million units. However, when the price of Samsung note increase, ceteris paribus, demand for iPhone will increase as iPhone and Samsung Notes are close substitutes and Samsung users will switch from their Notes to iPhones. At $600, the iPhone suppliers are only keen to supply up to 1 million units while demand for iPhones is at 1.2 million units. This will cause the iPhone users to slowly bid up the price as they can’t wait to get hold of an iPhone. As they bid up the prices, more suppliers are willing to produce more iPhones as they are profit driven and this results at a final equilibrium at $660 with 1.1 million units produced (the other 0.1 million iPhone switchers will not be able to afford $660 and will be left out of the market.

In our A levels Econs classes, we will frequently practice on diagram drawings and also teach you how to make full use of your diagrams to enhance your essay writing skills.  You can find out more about our small group classes!

[aio_button align=”center” animation=”none” color=”blue” size=”small” icon=”none” text=”JC Econs & Schedule” relationship=”dofollow” url=”https://aceyourecons.sg/jc-economics/”]

[aio_button align=”center” animation=”none” color=”red” size=”small” icon=”none” text=”Poly Econs” relationship=”dofollow” url=”https://aceyourecons.sg/poly-economics/”]

[aio_button align=”center” animation=”none” color=”orange” size=”small” icon=”none” text=”Back to Home” relationship=”dofollow” url=”https://aceyourecons.sg/”]

• Economics Tutor in Singapore
• Economics Tuition Testimonials
• JC 1 Economics Tuition
• Crash Courses
• JC Economics Headstart Classes in Dec (for students moving on to JC1 in 2024)
• Economics Tuition at Bukit Timah – Methodologies
• Latest News (JC Economics Tuition)
• Blog Articles

A level Economics tutor – Demand and Supply

A level economics tutor mr koh’s approach to revising demand and supply.

In revising the A Level Economics syllabus, it helps to go in to the examination hall with an expectation of what each topic and their examination questions entail. Contained within here are A Level Economics tutor Mr Koh’s summary of key themes in each topic for his Economics tuition students ’ perusal.

Demand and Supply

Some students hesitate to attempt essays on demand and supply, especially those pertaining to the impact on a market.

This is due to the fear of picking the wrong markets and deriving an incorrect analysis. This SHOULD NOT be interpreted as a signal that the topic is unimportant for the following reasons:

• Demand and supply questions will almost certainly be featured in the case study section. Students are often asked to explain a specified impact on a market using demand and supply analysis (i.e. explained under section 1.1.1). This is usually a 4m question that follows a question on trend description.
• Unpredictable as they are, demand and supply essay questions are tested in almost every ‘A’ level paper. While the markets chosen by students may differ, the critical analysis under FEEBLE (see section 1.1.2) remains the same. Building up competency in this area will put a student in better position to score in micro essays, especially if market structure and market failure questions turn out to be more unpalatable.
• One mantra taught by A level Economics tutor Mr Koh to observe is that while Cambridge can modify the way in which exam questions are phrased, they cannot test students on concepts which have not been taught before (i.e. not in the syllabus). Hence, when questions appear foreign to a student, it may merely be a phrasing issue. Economics tuition students who can ‘see through’ the question to identify the underlying concepts discussed above will almost certainly score better than their peers.

2018 Economics tuition class

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Save my name, email, and website in this browser for the next time I comment.

• Economics Tuition Classes
• Economics Tuition at Bukit Timah – Methodologies
• Publications by Economics Tutor
• Economics Tuition Videos
• JC Economics Tutor Mr Koh’s Articles
• Economics Tuition Trial Class

Mr Koh is the founder and sole tutor at ThatEconsTutor, which specialises in helping students excel in Economics using his self-developed Parachute Concept approach.

[email protected]

Location 1: 170 Upper Bukit Timah Rd, Bt Timah Shopping Centre, 588179 (Irwin’s Study) Location 2: Blk 302, #01-1842, Ang Mo Kio Ave 3, 560302 (Andrew Yap Education Centre)

Homelessness in California: Causes and Policy Considerations

Key takeaways.

California’s homeless crisis is associated with high housing costs, inadequate shelter spaces, deinstitutionalization, and changes in the criminal justice system.

To improve housing affordability, California needs to streamline and accelerate housing production and reexamine the regulations that have hindered new housing development.

To reduce the unsheltered homeless population, more shelter capacity and increased investment in cost-effective housing are needed.

A large share of the chronically homeless suffers from drug addiction and mental health problems. More treatment facilities and lower barriers for treatment are needed.

For decades, California has had one of the country’s largest populations of unhoused people. In recent years, however, the challenges have severely worsened for the Golden State. The homelessness counts in California rose by 42 percent between 2014 and 2020, while the rest of the country had a 9 percent decrease. On any given night, the state has more than 160,000 homeless persons.

Figure 1: State Homelessness Point-in-Time Counts

About 70 percent of California’s homeless live outside a shelter system, sleeping in tents, public open spaces, or vehicles. That’s a stark contrast with New York, where only 5 percent of the homeless population are unsheltered. Opinions diverge on how to reduce the unsheltered homeless population. Disputes center around whether to focus on building permanent housing versus shelters and interim housing and the legality of public encampments.

Another challenge lies in the interactions between mental illness, drug addiction, and homelessness.  In 2020, about 25 percent of all homeless adults in Los Angeles County had severe mental illnesses such as a psychotic disorder and schizophrenia and 27 percent had a long-term substance use disorder. Moreover, a higher percentage of so-called chronically homeless 1 have drug addiction, a severe mental illness, or both.

Meanwhile, state and local governments have spent billions of dollars to combat homelessness. Between 2018 and 2020, California spent $13 billion on homelessness, across nine state agencies through 41 programs (Har 2021). Governor Gavin Newsom signed a $12 billion funding package of bills in 2021 to tackle the homelessness crisis. 

With so much money being spent to combat homelessness, what are the prospects for reducing the numbers once and for all? This policy brief provides an overview of the major contributing factors to the rising homelessness in California and highlights the impact of policies, legislation, and regulations on several of those factors: housing, mental health, illicit drug use, and crime.

Housing affordability and availability

California has one of the most expensive and fastest-growing housing markets. Between 2000 and 2021, home values more than tripled in most metro areas in the Golden State. As of March 31, 2021, the typical home value in California was $775,000, double the levels in New York and Florida and triple the level in Texas ( Zillow ).

The median rent for a two-bedroom apartment is well over $3,000 in the Bay Area, more than twice as much as the national average of $1,200. In more than two-thirds of California’s ZIP codes, families are "rent-burdened" as they spend more than 30 percent of their income on rent (ABC 2021).

High housing costs and a low stock of affordable housing create a precarious situation, especially for lower-income families and individuals who are at higher risk of becoming homeless.

Figure 2: Median Rent for a Two-Bedroom Apartment, California, 2022

High housing costs are rooted in both demand- and supply-side factors. On the demand side, California boasts robust jobs and household income growth. Between 1990 and 2017, high-paying industries embraced the most vigorous job growth, including information technology (up 127 percent), education and health services (up 107 percent), and professional and business services (up 84 percent) (CA Government 2019). In 2021, the state accounted for 44 percent of the nation’s new jobs that year.

While the housing demand has surged, the supply has fallen short of the national average since 1991, as demonstrated in Figure 3. The supply shortage is exceptionally sharp in coastal cities. For example, San Francisco added 38,000 new jobs from 2016 to 2018 but built only 4,500 new housing units (McQuillan 2020). California ranks 49th among all U.S. states for housing units per capita (McKinsey Global Institute 2016).

Figure 3: Residential Building Permits, Per 1K Population

One key factor exacerbating the housing supply shortage is the single-family zoning and local opposition to housing, often embodied by the “not in my backyard,” or NIMBY, sentiment. Each additional growth control policy a community added was associated with a 3-5 percent increase in home prices (Taylor 2015; Rothwell 2019). 

Another factor is the high costs and uncertainties in housing development related to lengthy entitlement processes, which include zoning changes, permit applications, standards variances, site plan reviews, design reviews, and environmental impact reviews (EIR) required by the California Environmental Quality Act (CEQA).

For projects that required an EIR, the average timelines for approvals were 43 months in Los Angeles and 77 months in Santa Monica (O’Neill, Gualco-Nelson, and Biber 2018). In recent years, some CEQA lawsuits tried to block infill housing (i.e., new housing on vacant, underused lots in an older neighborhood) and housing projects near transit lines. CEQA lawsuits can be filed anonymously and by parties attempting to advance an economic rather than environmental agenda, such as business competitors (Hernandez 2018; Hernandez et al. 2019).

Legislative efforts have been made in recent years to accelerate housing production, subdivide lots, and relax certain zoning restrictions to allow for more home building. Senate Bill 35 was signed into law in 2017, aiming to streamline the approval processes for multifamily housing development. Senate Bill 9 was ratified four years later, allowing many homeowners to build additional units on their property or subdivide their land into two lots. While this could help create more than 700,000 new homes that would otherwise not be market feasible, owner-occupancy requirements may mean that only a share of that potential will likely be developed (Metcalf et al. 2021). Despite the recent policy achievements, the housing supply shortage will persist in the near future.

A dearth of shelters

About 70 percent of the homeless in California are unsheltered, more than in any other state. A primary reason for the sizable unsheltered population is the low stock of emergency shelters and transitional housing. Between 2007 and 2020, while the total homeless population increased in California, the shelter capacity remained flat for a decade before rising again after 2017, and the bed counts at transitional housing facilities had a continuous decline. 

Figure 4: Year-round beds in emergency shelters, transitional housing, and permanent supportive housing, California, 2007-2020

While the development of shelters has stagnated, there’s been a push for “Housing First” among many advocates and policymakers who believe permanent housing plus supportive services is the most important step to solving chronic homelessness.

Housing First is both an ideology and a practice developed in the 1990s that broke from the model of requiring homeless people to transition from emergency shelters to more permanent subsidized housing only when they met certain criteria around sobriety or treatment for mental illness.

The Housing First approach immediately provides homeless clients with an apartment and supportive services for drug addiction and/or mental illness (Tsemberis 2004). The supportive services are provided but participation is not required of the homeless clients.

Some benefits were attributed to Housing First, including higher housing stability, fewer emergency room visits, and improved medication adherence (Tsemberis, Gulcur, and Nakae 2004; Padgett, Henwood, and Tsemberis 2015; Aubry et al. 2016; Buchanan et al. 2009).

Meanwhile, Housing First showed no effects in reducing drug use, alcohol consumption, psychiatric symptoms, or enhancing the quality of life (Rosenheck et al. 2003; Mares, Greenberg, and Rosenheck 2007; Stergiopoulos et al. 2010).

Throughout the 2000s, Housing First received ample attention from academics, news media, and policymakers. But the policy carried unintended consequences when resources were diverted from shelters and other interim housing to building permanent housing projects.

For example, then-San Francisco Mayor Gavin Newsom presented a 10-year plan in 2004 that promised 3,000 new permanent supportive housing units in the following decade.

At the end of the decade, the city had been on track in creating permanent supportive housing. But city planners didn't anticipate an influx of homeless people, for whom the original plan was unable to accommodate.

The shelter capacity was weakened as the plan “directed the City to move its focus away from traditional emergency shelters and toward shelters with 24-hour crisis clinics and sobering centers.” As a result, the city reduced 440 year-round emergency shelter beds between 2005 and 2014 while adding only 26 beds with some crisis or sobering management (City and County of San Francisco 2014).

Figure 5: San Francisco Built No New Shelters during the 10-Year-Plan Period

With a rising homeless population and a shrinking shelter capacity, San Francisco’s unsheltered homeless population doubled from about 2,655 to 5,180 between 2005 and 2019. After the 10-year plan ended in 2014, city planners began building shelters again, but it was too little too late.

Building permanent supportive housing was embraced with similar enthusiasm in Southern California. In 2016, Los Angeles voters approved Prop. HHH, which authorized city officials to issue up to $1.2 billion in bonds to reduce homelessness by developing and remodeling permanent supportive housing. According to a report by the L.A. Controller Ron Galperin, five years after the passing of the proposition, only 14 percent of promised projects had been completed, a total of 1,142 units. Development costs were high and continued to rise. In 2021, the average per-unit cost was almost $600,000. Some units are extremely expensive. Fourteen percent of the units exceeded $700,000, and at least one project is estimated to cost nearly $837,000 per unit.

Using permanent housing to solve homelessness met with the reality of California housing development: slow and expensive.

It takes about four years to complete an affordable housing project in the Bay Area, costing about $400,000 to $700,000 per unit, typically a studio, one-bed, or two-bed apartment (Bay Area Council Economic Institute 2021).

Cheaper, faster alternatives exist. For example, a bed costs about $43,000 in a shelter and $73,000 in a “tiny home” — compact housing units that can be quickly built (Bay Area Council Economic Institute 2021). While these options have disadvantages such as crowding and restrictive rules (e.g., no pets) and are less permanent or aesthetically appealing than long-term houses, policymakers need to weigh those shortcomings against the suffering of people sleeping on the street.

In states with sufficient housing stock and a small number of homeless people, Housing First can solve the "houseless" problem. Still, intensive care is needed if the root cause of an individual’s homelessness is mental illnesses, drug addiction, or alcohol abuse (Pearson 2007).

In contrast, in places with a housing shortage, such as coastal California, there is a long wait before permanent housing becomes available, which defies the original vision of Housing First to immediately provide an apartment (Tsemberis, Gulcur, and Nakae 2004). As cautioned in a JAMA paper, the high capital costs to develop permanent supportive housing in some localities can prohibit Housing First as a viable option (Kertesz and Weiner 2009).

In 2020, only one-third of California’s homeless moved into permanent housing, 47 percent were awaiting housing and still accessing services, and 16 percent were no longer engaging in services (San Jose Mayor's Office 2021). While waiting for permanent housing, it’s imperative for homeless people to have a safe place to sleep. The longer people stay unsheltered, the more their mental and physical health deteriorates, making it harder for them to go back to the labor force, find housing, and regain financial stability. 

Mental illness, drug addiction, and crime

Drug addiction and mental illness are consistent risk factors for homelessness (Tsai and Rosenheck 2015; Thompson et al. 2013; Yamamoto et al. 2019). Substance use can be both a cause and a result of homelessness (Johnson and Chamberlain 2008).

There are also differences in terminologies. In 2019, the Los Angeles Homeless Services Authority released a report showing 25 percent of the unsheltered homeless had a severe mental illness and 14 percent had a substance use disorder. Using the same survey data, the Los Angeles Times showed a much higher prevalence level: about 51 percent with mental illness and 46 percent with substance use disorder. The critical difference lies in the definition of mental health and drug addiction. The government's estimates are lower because they only counted people with a permanent or long-term severe condition (LAHSA 2020).

Appendix Table A.1. contains estimates for the prevalence of mental illness and drug addiction among the homeless. The prevalence is particularly high among the chronically homeless, over 75 percent of whom have substance abuse or a severe mental illness (Kuhn and Culhane 1998; Poulin et al. 2010; Ellen Lockard Edens, Mares, and Rosenheck 2011). Powerful drugs such as P2P methamphetamine induce psychosis, the symptoms of which are sometimes confused with schizophrenia.

Several structural changes are related to the mental illness and drug addiction crisis seen among the unsheltered homeless population in California today.

Deinstitutionalization

The 1950s brought two key developments that affected homelessness. First, through books such as The Shame of the States by Albert Deutsch, the public gained insights into practices at many of those institutions, which were criticized as cruel and inhumane. In 1954, chlorpromazine (also known as "Thorazine") was approved by the U.S. Food and Drug Administration as a new antipsychotic drug, which gave many people hope that mental health patients could live in the community with the help of medication.

In 1963, President Kennedy signed the Community Mental Health Act into law to provide federal funding for community-based mental health care, aiming at replacing institutional care with community care. At the same time, federal law generally prohibited states from using Medicaid funds to pay for non-elderly adults (i.e., age 21-64) in “institutions for mental disease” (IMDs). 2 As state mental hospitals were considered IMDs and ineligible for Medicaid funds, states responded by closing down state mental hospitals (Geller 2000).

As a result of the nationwide deinstitutionalization, the number of mentally ill patients in public psychiatric hospitals plummeted from 558,239 in 1955 to 37,209 in 2016. As shown in Figure 6, the number of patients per 100,000 Americans decreased from 337 in 1955 to 11 in 2016 (Torrey et al. 2012; Treatment Advocacy Center 2016a; SAMHSA 2016).

However, the vision of providing care in the community didn’t materialize as was planned. The increase of beds in the community didn’t nearly make up for the loss of beds in public mental hospitals. Even if we add all other beds, including ones in private hospitals, general hospitals with psychiatric units, VA Medical Centers, and 24-hour residential treatment centers, the total beds throughout the country were about 170,000 in 2014, compared with over 550,000 in 1955 (SAMHSA 2016).

With the closing of state psychiatric hospitals and inadequate community-based care, streets, jails, and prisons have become the new asylum for many of the mentally ill.

Figure 6: Number of Inpatients in Public Mental Hospitals per 100K Americans

California was no exception amid the nationwide deinstitutionalization and has had a shortage of adult psychiatric beds. According to a RAND study (McBain et al. 2022), California is estimated to have a shortfall of 4,767 acute and sub-acute inpatient beds and 2,963 community residential beds. The magnitude of the state’s need for adult psychiatric beds is expected to grow over time.

Short of psychiatric inpatient beds, emergency room doctors often have little choice but to release mentally ill patients within a few days. Some patients may be referred to a county or private agency for help. But the time and effort it takes to access those services can be a barrier for many.

In recent years, there have been policy efforts to allow managed care organizations (MCOs) to receive Medicaid reimbursement for acute psychiatric care. But that care extends to only 15 days per month (Treatment Advocacy Center 2016b).

Realignment and Proposition 47

In the past decade, California began enacting laws to reform the criminal justice system and reduce populations in the state’s overcrowded prisons. But some advocates and policymakers now recognize that legislation may be having unintended consequences for some homeless people.

With the state’s prison population swollen to nearly 174,000 inmates — 200 percent of capacity — the California Public Safety Realignment Act (AB 109) was passed in 2011. The law meant low-level offenders would now receive sentences in county jail or non-custodial mandatory supervision rather than being sentenced to state prison.

Three years later, voters passed Proposition 47, which recategorized some nonviolent offenses from felonies to misdemeanors. This included burglary and theft under $950 and possession of controlled substances including cocaine, heroin, and methamphetamine ( Proposition 47 FAQ ). In 2021, S.B. 73 was signed into law, which further ended mandatory minimum sentences by giving judges discretion to grant probation instead of jail time for nonviolent drug crimes.

AB 109 and Proposition 47 reduced prison overcrowding, arrests, felony conviction, and long incarcerations (Bird et al. 2016; Petersilia et al. 2014; Mooney et al. 2019). But the laws also reduced the number of people going through drug courts — and being able to access services to help stabilize sobriety.

Overseen by a judge, a drug court seeks to harness the coercive power of the criminal justice system to persuade drug offenders to receive treatment (U.S. Department of Health and Human Services HHS 2016). If they pass the drug treatment program, their charges are dismissed. Studies have shown the effectiveness of drug courts on increasing treatment completion, reducing recidivism, incarceration, and subsequent drug use (Gottfredson, Najaka, and Kearley 2003; Wilson, Mitchell, and MacKenzie 2006; Sevigny, Fuleihan, and Ferdik 2013; Belenko, Patapis, and French 2005).

After the passing of Proposition 47, many of those already in the drug court system began dropping out of mental health and substance use disorder treatment. Moreover, the number of individuals referred to treatment by the criminal justice system also decreased (Hunter et al. 2017).

Homeless persons addicted to drugs face high barriers to access treatment in the community. Such barriers include long waiting lists for treatment programs that accept Medi-Cal, logistic constraints like the lack of a phone (to call in order to enroll), transportation, and documentation, and no help in accessing treatment (Brubaker et al. 2013). The new laws may have taken away an effective channel through which some homeless would have been able to access and complete drug treatment.

Policy Considerations

Homelessness in California is complex, and the diverse causes and trajectories of homelessness suggest the solutions are also diverse. Policymakers should consider a combination of strategies that address the housing shortage and costs issues and those that tackle the mental health and drug addiction crisis.

Housing development

• Streamline and expedite the approval process for new housing projects.
• Simplify funding applications for affordable housing projects.
• Expand permissible residential development on commercial property (Metcalf et al. 2021).
• Expand the use of CEQA exemptions.
• Amend CEQA to eliminate the automatic right of appeal for meritless cases and to prevent ambushes in which claimants raise issues too late (Kolkey 2019).

Shelters, interim housing, and alternative housing options

• Expand shelter capacity, including congregate and non-congregate shelters.
• Improve the quality and safety of congregate shelters and eliminate unnecessary rules such as restrictions on pets.
• When there are shelter spaces, the “right-to-shelter” should be enforced. Other rules such as no public defecation and public urination should be enforced to address the quality-of-life issues.
• Increase the development of innovative, cost-effective housing, such as tiny homes and modular homes.
• Promote shared-housing and consider reducing the implicit tax on housing sharing  (He, O’Flaherty, and Rosenheck 2010; Ellen and O’Flaherty 2007).

Permanent supportive housing

• Conduct in-depth research on the long-term outcomes of permanent supportive housing (PSH), to understand the effects of PSH on labor force participation, drug use, and psychiatric symptoms.
• County governments conduct site inspections on whether the PSHs have a sufficient staff-to-client ratio and whether homeless clients living in PSHs can receive timely, adequate treatments for their mental illness and drug addiction.

Mental health treatment

• Increase psychiatric beds at the acute, sub-acute, and community residential levels (to prevent mental health patients being released prematurely).
• Lower the barriers for the homeless with a mental illness to seek treatment (e.g., shorten the wait time for intakes to accommodate the needs of mental health patients).
• CARE (Community Assistance, Recovery & Empowerment) Court, a new framework that’s still unfolding, has the potential to provide useful tools to help those with severe mental health and substance abuse problems.
• For individuals lacking insight into their illness or unable to access community treatment voluntarily, Laura’s Law should be invoked to compel them to receive treatment detailed in the assisted outpatient treatment (AOT) order.
• Use Lanterman-Petris-Short (LPS) conservatorships for adults with serious mental health illness and gravely disabled (i.e., cannot take care of basic, personal needs for food, clothing, or shelter).

Drug addiction

• Build the infrastructure for addiction treatment inside hospitals to broaden the access to addiction treatment.
• Lower the barriers for homeless drug addicts to seek treatments (e.g., not requiring phone calls to be the first step of enrollment since many homeless have no easy access to phones).
• Increase the number of treatment facilities that accept Medi-Cal, which covers most homeless persons.
• Increase the number of treatment facilities with detox beds and residential care to reduce wait time and achieve “treatment on demand.”
• Make appropriate use of drug courts to incentivize people into receiving and completing addiction treatments.
• Improve accountability by enforcing the law on petty crimes, which are used by some homeless persons to sustain drug use habits.

Jialu Streeter a Research Scholar and the Director of Partnerships at the SIEPR. Her research primarily focuses on the economics of aging, retirement security, and financial security and mental wellbeing of older adults.

Table A.1.: The prevalence of mental illness and substance use among the homeless population.

Note: Substance abuse can include the abuse of drugs and alcohol. The estimates based on Point-in-Time data tend to be lower because (i) the data focus on serious conditions that last long term or permanently and (ii) the point-in-time data sample includes all homeless, sheltered and unsheltered, individuals with and without children

[ 1 ] Chronically homeless is defined as a person who is homeless for at least 1 year or 4+ separate occasions in the last 3 years and has a substance use disorder, serious mental illness, developmental disability, PTSD, cognitive impairments from brain injury, or chronic physical illness or disability (HUD 2009). In California, chronically homeless account for one-third of all homeless.

[ 2 ] The definition of IMDs has been modified many times. Between 1966 and 1988, a facility was deemed an IMD if it was licensed as a psychiatric facility, accredited as a psychiatric facility, or under the jurisdiction of the state's mental health authority. After 1988, a facility would be classified as an IMD if it had more than 16 psychiatric treatment beds.

ABC. 2021. “ ‘California Dreaming’ Five-Part Series. ” ABC7 Los Angeles. February 9, 2021.

Aubry, Tim, Paula Goering, Scott Veldhuizen, Carol E. Adair, Jimmy Bourque, Jino Distasio, Eric Latimer, et al. 2016. “ A Multiple-City RCT of Housing First With Assertive Community Treatment for Homeless Canadians With Serious Mental Illness. ” Psychiatric Services 67 (3): 275–81.

Bay Area Council Economic Institute. 2021. “ Bay Area Homelessness: New Urgency, New Solutions. ”

Belenko, Steven, Nicholas Patapis, and Michael French. 2005. “ Economic Benefits of Drug Treatment: A Critical Review of the Evidence for Policy Makers | Office of Justice Programs. ” U.S. DOJ Office of Justice Programs .

Bird, Mia, Sonya Tafoya, Ryken Grattet, and Viet Nguyen. 2016. “How Has Proposition 47 Affected California’s Jail Population?” 20.

Bowie, Bonnie H., and Lauren Valk Lawson. 2018. “ Using the Vulnerability Index® to Assess the Health Needs of a Homeless Community. ” Journal of Community Health Nursing 35 (4): 189–95.

Brubaker, Michael D., Ellen A. Amatea, Edil Torres-Rivera, M. David Miller, and Laura Nabors. 2013. “ Barriers and Supports to Substance Abuse Service Use Among Homeless Adults. ” Journal of Addictions & Offender Counseling 34 (2): 81–98.

Buchanan, David, Romina Kee, Laura S. Sadowski, and Diana Garcia. 2009. “ The Health Impact of Supportive Housing for HIV-Positive Homeless Patients: A Randomized Controlled Trial. ” American Journal of Public Health 99 (S3): S675–80.

Burt, Martha R., and Laudan Aron. 2001. Helping America’s Homeless . The Urban Institute Press.

Bymaster, Angela, Joyce Chung, Andrea Banke, Hee Jae Choi, and Chelsea Laird. 2017. “ A Pediatric Profile of a Homeless Patient in San Jose, California. ” Journal of Health Care for the Poor and Underserved 28 (1): 582–95.

CA Government, Metropolitan Transportation Comission. 2019. “ Which Industries Are Creating or Losing Jobs? ” Vital Signs.

City and County of San Francisco. 2014. “ San Francisco’s Ten-Year Plan to End Chronic Homelessness: Anniversary Report Covering 2004 to 2014. ” San Francisco Human Services Agency, City and County of San Francisco.

Edens, Ellen L., Wes Kasprow, Jack Tsai, and Robert A. Rosenheck. 2011. “ Association of Substance Use and VA Service-Connected Disability Benefits with Risk of Homelessness among Veterans. ” The American Journal on Addictions 20 (5): 412–19.

Edens, Ellen Lockard, Alvin S. Mares, and Robert A. Rosenheck. 2011. “ Chronically Homeless Women Report High Rates of Substance Use Problems Equivalent to Chronically Homeless Men. ” Women’s Health Issues 21 (5): 383–89.

Ellen, Ingrid Gould, and Brendan O’Flaherty. 2007. “Social Programs and Household Size: Evidence from New York City.” Population Research and Policy Review 26 (4): 387–409.

Evans, William N., David C. Philips, and Krista J. Ruffini. 2019. “ Reducing and Preventing Homelessness: A Review of the Evidence and Charting a Research Agenda. ” Working Paper 26232. Working Paper Series. National Bureau of Economic Research.

Fountain, Jane, and Samantha Howes. 2004. Home and Dry? Homelessness and Substance Use . London: National Addiction Centre.

Geller, Jeffrey L. 2000. “ Excluding Institutions for Mental Diseases From Federal Reimbursement for Services: Strategy or Tragedy? ” Psychiatric Services 51 (11): 1397–1403.

Gottfredson, Denise C., Stacy S. Najaka, and Brook Kearley. 2003. “ Effectiveness of Drug Treatment Courts: Evidence from a Randomized Trial*. ” Criminology & Public Policy 2 (2): 171–96.

Har, Janie. 2021. “ Audit: California Should Track Homeless Spending, Set Policy. ” AP News , 2021.

He, Yinghua, Brendan O’Flaherty, and Robert A. Rosenheck. 2010. “ Is Shared Housing a Way to Reduce Homelessness? The Effect of Household Arrangements on Formerly Homeless People. ” Journal of Housing Economics 19 (1): 1–12.

Hernandez, Jennifer. 2018. “California Environmental Quality Act Lawsuits and California’s Housing Crisis.” Hastings Environmental Law Journal 24 (1): 52.

Hernandez, Jennifer, David Friedman, Stephanie DeHerrera, and Holland & Knight. 2019. “ In the Name of the Environment: Litigation Abuse Under CEQA. ”

HUD. 2009. “ The McKinney-Vento Homeless Assistance Act As Amended by S.896 The Homeless Emergency Assistance and Rapid Transition to Housing (HEARTH) Act of 2009. ”

Hunter, Sarah B., Lois M. Davis, Rosanna Smart, and Susan Turner. 2017. “ Impact of Proposition 47 on Los Angeles County Operations and Budget. ” RAND Corporation.

Johnson, Guy, and Chris Chamberlain. 2008. “ Homelessness and Substance Abuse: Which Comes First? ” Australian Social Work 61 (4): 342–56.

Kertesz, Stefan G., and Saul J. Weiner. 2009. “ Housing the Chronically Homeless: High Hopes, Complex Realities. ” JAMA 301 (17): 1822–24.

Kolkey, Daniel. 2019. “ CEQA: How to Mend It since You Can’t End It. ” Orange County Register (blog). 2019.

Kuhn, R., and D. P. Culhane. 1998. “ Applying Cluster Analysis to Test a Typology of Homelessness by Pattern of Shelter Utilization: Results from the Analysis of Administrative Data. ” American Journal of Community Psychology 26 (2): 207–32.

LAHSA. 2020. “ 2020 Greater Los Angeles Homeless Count Demographic Survey Packet. ” 2020.

Mares, Alvin, Greg Greenberg, and Robert Rosenheck. 2007. “ HUD/HHS/VA Collaborative Initiative to Help End Chronic Homelessness: Is System Integration Associated with Client Outcomes? ” U.S. Department of Health and Human Services.

McBain, Ryan K., Jonathan H. Cantor, Nicole K. Eberhart, Shreya S. Huilgol, and Ingrid Estrada-Darley. 2022. “ Adult Psychiatric Bed Capacity, Need, and Shortage Estimates in California—2021. ” RAND Corporation.

McQuillan, Lawrence J. 2020. " How to Restore the California Dream: Removing Obstacles to Fast and Affordable Housing Development. " Independent Institute. 

McKinsey Global Institute. 2016. “ Closing California’s Housing Gap. ” McKinsey & Company.

Metcalf, Ben, David Garcia, Ian Carlton, Mapcraft Labs, and Kate Macfarlane. 2021. “Assessing the Viability of New Housing Supply Under California’s Senate Bill 9.” Terner Center for Housing Innovation - UC Berkeley , 21.

Montgomery, Ann Elizabeth, Dorota Szymkowiak, Jessica Marcus, Paul Howard, and Dennis P. Culhane. 2016. “ Homelessness, Unsheltered Status, and Risk Factors for Mortality. ” Public Health Reports 131 (6): 765–72.

Mooney, Alyssa C., Torsten B. Neilands, Eric Giannella, Meghan D. Morris, Jacqueline Tulsky, and M. Maria Glymour. 2019. “ Effects of a Voter Initiative on Disparities in Punishment Severity for Drug Offenses across California Counties. ” Social Science & Medicine 230 (June): 9–19.

O’Neill, Moira, Guilia Gualco-Nelson, and Eric Biber. 2018. “ Examining the Local Land Use Entitlement Process in California to Inform Policy and Process. ” Berkeley Center for Law, Energy & the Environment.

Padgett, Deborah K., Benjamin F. Henwood, and Sam J. Tsemberis. 2015. “ Housing First Gets Its Evidence Base and Momentum Builds. ” In Housing First . Oxford University Press.

Petersilia, Joan, Sara Abarbanel, John S Butler, Mark Feldman, Mariam Hinds, Kevin E Jason, Corinne Keel, Matt J Owens, and Camden Vilkin. 2014. “ Voices from the Field: How California Stakeholders View Public Safety Realignment. ” SSRN Electronic Journal .

Poulin, Stephen R., Marcella Maguire, Stephen Metraux, and Dennis P. Culhane. 2010. “ Service Use and Costs for Persons Experiencing Chronic Homelessness in Philadelphia: A Population-Based Study. ” Psychiatric Services 61 (11): 1093–98.

Robertson, M. J., C. Zlotnick, and A. Westerfelt. 1997. “ Drug Use Disorders and Treatment Contact among Homeless Adults in Alameda County, California. ” American Journal of Public Health 87 (2): 221–28.

Rosenheck, Robert, Wesley Kasprow, Linda Frisman, and Wen Liu-Mares. 2003. “ Cost-Effectiveness of Supported Housing for Homeless Persons With Mental Illness. ” Archives of General Psychiatry 60 (9): 940–51.

Rothwell, Jonathan. 2019. “ Land Use Politics, Housing Costs, and Segregation in California Cities. ” UC Berkeley Terner Center for Housing.

SAMHSA. 2016. “ National Mental Health Services Survey (N-MHSS): 2016, Data On Mental Health Treatment Facilities | CBHSQ Data. ”

San Diego County. n.d. “ Proposition 47 FAQ. ” San Diego County Government, Office of the Public Defender. Accessed May 10, 2022.

San Jose Mayor's Office. 2021. “ California’s Big City Mayors Boldly Ask State Leaders for Record Level Funds to End Homelessness | Office of the Mayor - Latest News | City of San Jose. ” City of San Jose. 2021.

Sevigny, Eric L., Brian K. Fuleihan, and Frank V. Ferdik. 2013. “ Do Drug Courts Reduce the Use of Incarceration?: A Meta-Analysis. ” Journal of Criminal Justice 41 (6): 416–25.

Stergiopoulos, Vicky, Carolyn S. Dewa, Gordon Tanner, Nancy Chau, Mike Pett, and Jo Lynn Connelly. 2010. “ Addressing the Needs of the Street Homeless. ” International Journal of Mental Health 39 (1): 3–15.

Taylor, Mac. 2015. “ California’s High Housing Costs - Causes and Consequences. ” Legislative Analyst’s Office (LAO).

Thompson, Ronald G., Melanie M. Wall, Eliana Greenstein, Bridget F. Grant, and Deborah S. Hasin. 2013. “ Substance-Use Disorders and Poverty as Prospective Predictors of First-Time Homelessness in the United States. ” American Journal of Public Health 103 (S2): S282–88.

Torrey, Fuller, Doris Fuller, Jeffrey Geller, Carla Jacobs, and Kristina Ragosta. 2012. “ No Room at the Inn: Trends and Consequences of Closing Public Psychiatric Hospitals 2005-2010. ” Treatment Advocacy Center.

Treatment Advocacy Center. 2016a. “ Serious Mental Illness Prevalence in Jails and Prisons. ”

———. 2016b. “ The Medicaid IMD Exclusion and Mental Illness Discriminiation. ”

Tsai, Jack, and Robert A. Rosenheck. 2015. “ Risk Factors for Homelessness among US Veterans. ” Epidemiologic Reviews 37: 177–95.

Tsemberis, Sam, Leyla Gulcur, and Maria Nakae. 2004. “Housing First, Consumer Choice, and Harm Reduction for Homeless Individuals With a Dual Diagnosis.” American Journal of Public Health 94 (4): 651–56.

U.S. Department of Health and Human Services (HHS). 2016. “ EARLY INTERVENTION, TREATMENT, AND MANAGEMENT OF SUBSTANCE USE DISORDERS. ” In Facing Addiction in America: The Surgeon General’s Report on Alcohol, Drugs, and Health . Washington, D.C.: U.S. Department of Health and Human Services.

Wilson, David B., Ojmarrh Mitchell, and Doris L. MacKenzie. 2006. “ A Systematic Review of Drug Court Effects on Recidivism. ” Journal of Experimental Criminology 2 (4): 459–87.

Yamamoto, Ayae, Jack Needleman, Lillian Gelberg, Gerald Kominski, Steven Shoptaw, and Yusuke Tsugawa. 2019. “ Association between Homelessness and Opioid Overdose and Opioid-Related Hospital Admissions/Emergency Department Visits. ” Social Science & Medicine 242 (December): 112585.

Related Topics

• Policy Brief

More Publications

Communication policy reform, interest groups, and legislative capture, portfolios for long-term investors, u.s. trade policy and the pacific rim, from fordney-mccumber to the trade expansion act of 1962: a political-economic analysis.

Economic Impact of Supply and Demand Essay

• To find inspiration for your paper and overcome writer’s block
• As a source of information (ensure proper referencing)
• As a template for you assignment

The main objective of a free economic system is to utilize the resources of the country in such a way that the production of goods and services out of the available resources may be optimal. In essence, an economic system is characterized by the supply and demand of commodities which may be consequently affected by scarcity and choice as described in the following paragraphs.

The market supply of a commodity is the total quantities that firms are willing to offer and sell over some time period. This implies that firms are economic agents responsible for supply of goods and services. Thus, the law of supply states that provided other conditions is kept constant, when the price of a commodity increases the supply increases and vice versa (Hardwick et al., 1999). In this way existing firms expand their outputs and new firms will join the industry so as to take advantage of increased profitability and consequently safeguard increases. When cost of production of any commodity rises, supply falls and vice-versa due to the scarce resources. Other factors that affect supply include the price of other certain goods, price of factors of production, state of technology, expectations, government policies, and tastes of producers.

Demand is the quantity an individual is willing to buy at a given price over a period of time. It takes authority in the following: ability, time, and price specification. Furthermore, demand as opposed to want, need or desire is backed by purchasing power. For this reason, the law of demand states that provided other conditions are kept constant, when a price of a commodity increases the quantity demanded decreases and vice versa; there is an inverse relationship between the price of a commodity and quantity demanded (Hardwick et al., 1999). Demand and supply of a commodity are affected by the scarcity of resources and the choices made by economic agents. Scarcity is a relative term and it means less than requirement. The main cause of economic problems is the scarcity of resources at the disposal of human beings e.g. time, money, wealth e.t.c. A commodity is considered scarce when it is limited in supply. Choice is a selection of wants to satisfy from an ending list of wants that is necessitated by the fact that resources are limited. If there is change in taste and preference of a consumer, demand will not increase in spite of fall in price level.

Hardwick et al. (1999) assert that the society is faced with the following problems due to scarcity and choice: 1. the products to produce and their relative quantities, 2. methods of production to be used, 3. how the society’s output of goods and services is divided among its members, and 4. how competent is the current production and distribution. Consequently, scarcity has two elements – our wants and our means of fulfilling those wants. These can be interrelated since wants are changeable and partially determined by society. The way we fulfill wants can affect those wants. The degree of scarcity is constantly changing. The quantity of commodities and resources depends on technology and people’s action, which bring about production. Individuals’ imagination, innovativeness, and willingness to do what needs to be done can greatly increase available goods and resources. This implies that, although there is an improvement in technology, scarcity cannot be entirely eliminated since new wants are constantly changing.

For instance, the production of food may be in thousands of tons, but it is scarce because it is less than the requirements. If any commodity is available in greater quantity as compared to its demand then it will not be scarce; a good example is air. Furthermore, much of what people do reflects their rational self-interest. Using the choice concept, two things determine what people do: the pleasure people get from doing or consuming something and the price of doing or consuming something.

Price is the tool the market uses to bring the quantity supplied to the quantity demanded. Varying prices present motivation for individuals to change whatever they are involved in. Though, those incentives in the invisible hands guide us all. To understand economics we must understand how price affects our choices. That’s why we focus on the effect of price on quantity demanded as explained in paragraph three. We want to understand the way in which a change in price will affect what we do. For instance, on certain items we are penny-pinchers; on others we are big spenders.

In light of this, all human wants cannot be satisfied due to scarcity of resources. If there are so many wants and resources are not sufficient then only a few wants will be satisfied and in this case, choice will be made. It means that preference will be given to some wants as compared to others. The wants which have greater importance will be satisfied through the right choice. In essence, as almost people cannot have all the goods and services that they want, they have to make choices due to limited supply. With no rise in income, if someone wants to buy, for instance, a new coat they may have to spend less on eating out for a while. Similarly with limited resources, if a country wishes to devote more resources to health care it will have to reduce the resources it devotes to, for example, education.

Therefore economic agents need to understand the economic system so as to tell the direction that the demand and supply of a product would take if there are problems caused by scarcity and choice. Since needs and wants are far more than the resources available to satisfy them, the choices we can make are constrained not only by scarcity but also by political, legal, traditional, and moral forces. In other words, there are numerous non-economic forces that determine and mold our decision-making process.

Hardwick, P., Khan, B., & Langmead, J. (1999). An Introduction to Modern Economy. Upper Saddle River, NJ: FT Prentice Hall.

• Just-in-Time Policy and Its Advantages
• Did Lehman’s Fall Matter
• Scarcity as a Current Economic Issue
• Water Scarcity, Marketing, and Privatisation
• Trend Analysis: Water Scarcity Issue
• Economics in the Movies
• Ethics in the Modern Economy
• Neoliberalist Perspectives on the Economy
• The French Exception: Foreign Affairs
• The Concept of Economies of Scales
• Chicago (A-D)
• Chicago (N-B)

IvyPanda. (2021, November 5). Economic Impact of Supply and Demand. https://ivypanda.com/essays/economic-impact-of-supply-and-demand/

"Economic Impact of Supply and Demand." IvyPanda , 5 Nov. 2021, ivypanda.com/essays/economic-impact-of-supply-and-demand/.

IvyPanda . (2021) 'Economic Impact of Supply and Demand'. 5 November.

IvyPanda . 2021. "Economic Impact of Supply and Demand." November 5, 2021. https://ivypanda.com/essays/economic-impact-of-supply-and-demand/.

1. IvyPanda . "Economic Impact of Supply and Demand." November 5, 2021. https://ivypanda.com/essays/economic-impact-of-supply-and-demand/.

Bibliography

IvyPanda . "Economic Impact of Supply and Demand." November 5, 2021. https://ivypanda.com/essays/economic-impact-of-supply-and-demand/.

Try AI-powered search

The race is on to control the global supply chain for AI chips

The focus is no longer just on faster chips, but on more chips clustered together.

Your browser does not support the <audio> element.

I n 1958 Jack Kilby at Texas Instruments engineered a silicon chip with a single transistor. By 1965 Fairchild Semiconductor had learned how to make a piece of silicon with 50 of the things. As Gordon Moore, one of Fairchild’s founders, observed that year, the number of transistors that could fit on a piece of silicon was doubling on a more or less annual basis.

In 2023 Apple released the iPhone 15 Pro, powered by the a 17 bionic chip, with 19bn transistors. The density of transistors has doubled 34 times over 56 years. That exponential progress , loosely referred to as Moore’s law, has been one of the engines of the computing revolution. As transistors became smaller they got cheaper (more on a chip) and faster, allowing all the hand-held supercomputing wonders of today. But the sheer number of numbers that ai programs need to crunch has been stretching Moore’s law to its limits.

The neural networks found in almost all modern AI need to be trained in order to ascertain the right “weights” to give their billions, sometimes trillions, of internal connections. These weights are stored in the form of matrices, and training the model involves manipulating those matrices, using maths. Two matrices—sets of numbers arrayed in rows and columns—are used to generate a third such set; each number in that third set is produced by multiplying together all the numbers in a row in the first set with all those in a column of the second and then adding them all up. When the matrices are large, with thousands or tens of thousands of rows and columns, and need to be multiplied again and again as training goes on, the number of times individual numbers have to be multiplied and added together becomes huge.

The training of neural nets, though, is not the only objective that requires lightning-fast matrix multiplication. So does the production of high-quality video images that make computer games fun to play: and 25 years ago that was a far larger market. To serve it Nvidia, a chipmaker, pioneered the design of a new sort of chip, the graphics-processing unit ( gpu ), on which transistors were laid out and connected in a way that let them do lots of matrix multiplications at once. When applied to ai , this was not their only advantage over the central processing units ( CPU s) used for most applications: they allowed larger batches of training data to be used. They also ate up a lot less energy.

Training AlexNet, the model which ushered in the age of “deep learning” in 2012, meant assigning weights to 60m internal connections. That required 4.7 x 10 17  floating-point operations ( flop ); each flop is broadly equivalent to adding or multiplying two numbers. Until then, that much computation would have been out of the question. Even in 2012, using the best CPU s would not just have required a lot more time and energy but also simplifying the design. The system that trained AlexNet did all its phenomenal FLOP ping with just two GPU s.

A recent report from Georgetown University’s Centre for Emerging Technology says GPU s remain 10-100 times more cost-efficient and up to 1,000 times faster than cpu s when used for training models. Their availability was what made the deep-learning boom possible. Large language models ( LLM s), though, have pushed the demand for calculation even further.

Transformers are go

In 2018 Alec Radford, a researcher at Open aI , developed a generative pre-trained transformer, or gpt , using the “transformer” approach described by researchers at Google the year before. He and his colleagues found the model’s ability to predict the next word in a sentence could reliably be improved by adding training data or computing power. Getting better at predicting the next word in a sentence is no guarantee a model will get better at real-world tasks. But so far the trend embodied in those “scaling laws” has held up.

As a result llm s have grown larger. Epoch ai , a research outfit, estimates that training gpt -4 in 2022 required 2 x 10 25 flop , 40m times as many as were used for AlexNet a decade earlier, and cost about $100m . Gemini-Ultra, Google’s most powerful model, released in 2024, is reported to have cost twice as much; Epoch AI reckons it may have required 5 x 10 25 flop . These totals are incomprehensibly big, comparable to all the stars in all the galaxies of the observable universe, or the drops of water in the Pacific Ocean.

In the past the solution to excessive needs for computation has been a modicum of patience. Wait a few years and Moore’s law will provide by putting even more, even faster transistors onto every chip. But Moore’s law has run out of steam. With individual transistors now just tens of nanometres (billions of a metre) wide, it is harder to provide regular jumps in performance. Chipmakers are still working to make transistors smaller, and are even stacking them up vertically to squeeze more of them onto chips. But the era in which performance increased steadily, while power consumption fell, is over.

As Moore’s law has slowed down and the desire to build ever-bigger models has taken off, the answer has been not faster chips but simply more chips. Insiders suggest gpt -4 was trained on 25,000 of Nvidia’s a 100 gpu s, clustered together to reduce the loss of time and energy that occurs when moving data between chips.

Much of the $200bn that Alphabet, Amazon, Meta and Microsoft plan to invest in 2024 will go on ai -related stuff, up 45% from last year; much of that will be spent on such clusters. Microsoft and Open ai are reportedly planning a $100bn cluster in Wisconsin called Stargate. Some in Silicon Valley talk of a $1trn cluster within the decade. Such infrastructure needs a lot of energy. In March Amazon bought a data centre next door to a nuclear power plant that can supply it with a gigawatt of power.

The investment does not all go on GPU s and the power they draw. Once a model is trained, it has to be used. Putting a query to an AI system typically requires roughly the square root of the amount of computing used to train it. But that can still be a lot of calculation. For gpt -3, which required 3 x 10 23 flop to train, a typical “inference” can take 3 x 10 11 flop . Chips known as fpga s and asic s, tailored for inference, can help make running ai models more efficient than using gpu s.

Nevertheless, it is Nvidia that has done best out of the boom. The company is now worth $2.8trn, eight times more than when Chat gpt was launched in 2022. Its dominant position does not only rest on its accumulated know-how in GPU- making and its ability to mobilise lots of capital (Jensen Huang, its boss, says Nvidia’s latest chips, called Blackwell, cost $10bn to develop). The company also benefits from owning the software framework used to program its chips, called cuda , which is something like the industry standard. And it has a dominant position in the networking equipment used to tie the chips together.

Supersize me

Competitors claim to see some weaknesses. Rodrigo Liang of SambaNova Systems, another chip firm, says that Nvidia’s postage-stamp-size chips have several disadvantages which can be traced back to their original uses in gaming. A particularly big one is their limited capacity for moving data on and off (as an entire model will not fit on one gpu ).

Cerebras, another competitor, markets a “wafer scale” processor that is 21.5cm across. Where GPU s now contain tens of thousands of separate “cores” running calculations at the same time, this behemoth has almost a million. Among the advantages the company claims is that, calculation-for-calculation, it uses only half as much energy as Nvidia’s best chip. Google has devised its own easily customised “tensor-processing unit” ( tpu ) which can be used for both training and inference. Its Gemini 1.5 ai model is able to ingest eight times as much data at a time as gpt -4, partly because of that bespoke silicon.

The huge and growing value of cutting-edge gpu s has been seized on for geopolitical leverage. Though the chip industry is global, a small number of significant choke-points control access to its ai -enabling heights. Nvidia’s chips are designed in America. The world’s most advanced lithography machines, which etch designs into silicon through which electrons flow, are all made by asml , a Dutch firm worth $350bn. Only leading-edge foundries like Taiwan’s tsmc , a firm worth around $800bn, and America’s Intel have access to this tool. And for many other smaller items of equipment the pattern continues, with Japan being the other main country in the mix.

These choke-points have made it possible for the American government to enact harsh and effective controls on the export of advanced chips to China. As a result the Chinese are investing hundreds of billions of dollars to create their own chip supply chain. Most analysts believe China is still years behind in this quest, but because of big investments by companies such as Huawei, it has coped with export controls much better than America expected.

America is investing, too. tsmc , seen as a potential prize or casualty if China decided to invade Taiwan, is spending about $65bn on fabs in Arizona, with about $6.6bn in subsidies. Other countries, from India ($10bn) to Germany ($16bn) to Japan ($26bn) are increasing their own investments. The days in which acquiring ai chips has been one of ai ’s biggest limiting factors may be numbered. ■

Explore more

From the August 3rd 2024 edition

Discover stories from this section and more in the list of contents

More from Schools brief

AI firms will soon exhaust most of the internet’s data

Can they create more?

A short history of AI

In the first of six weekly briefs, we ask how AI overcame decades of underdelivering

Finding living planets

Life evolves on planets. And planets with life evolve

On the origin of “species”

The term, though widely used, is hard to define

Making your way in the world

An individual’s life story is a dance to the music of time

How organisms are organised

Like any well-run operation, a body is made of specialised parts