Why doesn't the theory of supply and demand imply that one can make free money by trading?
Supply and demand does not imply you cannot make money by trading.
The statements you make are virtually completely incorrect. Let's break it down point by point.
- You are confusing quantity supplied or just quantity with supply.
Supply is the relationship between quantity you are willing to sell and price. For example, function $S=p+100$, is an example of mathematical representation of supply, as it describes how much suppliers are willing to supply at every quantity. You don't necessary need math to describe supply, but supply, generally speaking, cannot be a single number unless we are talking about constant 'fixed' supply, but your description does not represent fixed supply since your description says you can buy more quantity to resell later. Hence, your paragraph is not about supply at all, as understood in economics.
- The following statement is false prima facie;
Since the supply of this commodity has now halved, the price should double.
There is no economic theory, or logical reason why halving supply should lead to doubling of price. This could potentially happen as some rare example, if you by random chance have a supply demand system with right properties this can occur, but this is generally not the case, and it is quite rare since the price elasticity of supply can be any real number on continuum $[0,\infty]$, but only price elasticity of exactly 1 has the property that 50% drop in quantity is associated with 50% drop in price. Hitting, exactly 1 is not very realistic, in fact theoretically probability of hitting any exact real number is zero, practically there is some chance of hitting numbers very close to 1 if you do not measure with infinite precision.
Is such a maneuver possible in practice? I would assume that it's impossible. If it's impossible, what are the reasons that prevent such a maneuver from being executed in practice?
- It is possible to make money by selling and buying commodities. However, your understanding of the mechanism is not correct.
A) it is possible to corner the market and manipulate price, but it is not riskless activity since any such attempt is vulnerable to external supply, and the fact that long term supply is extremely elastic even though short term supply might not be.
B) when people make money from buying and selling it is typically not due to the above (since such practice can be even illegal in some cases), but based on trying to estimate future swings in supply/demand. This is called speculation, but in economics that word doesn't have the same meaning as in regular parlance, a speculation is any activity where someone tries to profit from expected price fluctuations (e.g. even if you pick a university degree because you anticipate higher demand for profession in the future you are technically speculating).
Alternatively, it can also come from arbitrage (price differences between different locations) or hedging which is akin of providing price insurance to buyers of these commodities, and profit is in essence the insurer's premium.
