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The shape of the supply curve

Stefanwaal
Posts: 54
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11/22/2015 4:22:42 PM
Posted: 1 year ago
Since the economics forum is very dead, I decided to try and give it a little bit of life by starting a discussion about the supply curve.

One of the first lessons you learn in economics is supply and demand. You learn the supply curve is sloping upwards, so it looks something like this:
http://www.debate.org...

But I'm unsure if that's really a realistic shape for the supply curve. Especially because there are very many different times you can look at. I'll address them all below.

In all of the scenarios I assume the economy is acting pretty normal. So no hyperinflation, world wars or other extreme economic situations. Furthermore, I also looked at goods companies have to keep in stock. So no services or apps.

The very-short-term supply curve
In the very short term (which normally lasts only a few days) nothing can get changed. Not even the prices. Take for example a restaurant. They have the prices printed on menus. If the restaurant would want to change the prices, they would first have to decide what the new price would be. After that they would have to print new menus and replace the menus. This takes time.

Furthermore, companies only have a finite amount of stock. If the demand would suddenly explode, companies would quickly run out of stock and have to disappoint many customers. So a more realistic supply curve for the very short term would be:
http://www.debate.org...

The short-term supply curve
In the short term companies are able to adapt to a change in demand, but only to a limited extend.

When demand goes up, most companies first want to sell more goods at the same price. So companies will buy more from their supplier. But since suppliers have a production capacity which can't get expanded quickly, it"s only possible to buy a little bit more. Once the suppliers reach their production capacity, they have the power to raise prices. This in turn means that the companies which sell the goods will also raise their prices.

When demand drops, companies will first sell less. But if the demand drops a lot, companies realize their stock became obsolete. It's not profitable to have items in stock almost nobody wants. So the companies throw the items in a sale, so they are at least able to get something back from their investment in the stock. Think of clothing stores which throw the summer collection in a sale the moment winter is coming. So a more accurate short-term supply curve would be:
http://www.debate.org...

The purple line is the temporary state a market is in once the stock becomes obsolete.

The medium-term supply curve
If the demand for a product increased a lot, companies will start looking for new suppliers in the medium-term, because the suppliers they already knew had trouble supplying enough.

This means the more accurate supply curve looks like this:
http://www.debate.org...

The long-term supply curve
The long-term supply curve will look roughly the same as the one for the medium-term. The main difference is that in the long-term companies will go back to one supplier if they earlier got multiple, since it costs less to maintain a relationship with one supplier. The companies are able to go to one supplier, because that supplier managed to expand its production capacity.

I'm curious what others think of the remarks I made about the supply curve. Also, is it possible to post images directly on the forum?
EverlastingMoment
Posts: 51
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11/22/2015 7:15:14 PM
Posted: 1 year ago
Actually for the very short-term supply curve as I believe it may or may not apply to certain entrepreneurs who respond to demand shifts. Most probably those in the smallest of businesses.
ColeTrain
Posts: 4,306
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11/23/2015 11:29:17 PM
Posted: 1 year ago
At 11/22/2015 4:22:42 PM, Stefanwaal wrote:

Overall, you're interpretation seems accurate. However, there's a couple of things I'd like to point out:

1) The very short term supply curve is a bit off:
- Obviously you're right that in the very short term, demand can't explode or companies will fall out. Yet, supplies only stay the same if there's no action. In comparison to their number of goods, any purchases would give it slight upwards curve. Again, this depends on how short term "very short term" really is. Still, though, there's a the economic implication of the theory of supply/demand. Demand staying the same would still deteriorate supplies, but a in a short period, it wouldn't be drastic.

2) Demand is essentially disregarded:
- While you do note you're assuming nothing extreme is happening to skew the curves from the norm, you put demand on a back burner. There's trendy things all the time, and these should be included. Generally, there's no drastic boosts/dips in the curvature, it's more gradual. With demand varying from time to time, a close examination of the overall curve or long-term curve would see dips and boosts all the time. That's why demand is important; and it's why capacities on items are more of a construct when related to price. If a something is essentially limitless, demands might still be raging because of the desire for more. Yet, the supply wouldn't really be affected since there's really no capacity for these items. While supplies aren't affected, neither is the demand.

>> I like your analysis, it's very nice and helpful. You should contact TheProphett or myself if you'd be interested in an economic forum revival program, and perhaps doing a few OPs yourself. Your efforts shouldn't be wasted individually when they can be cultivated and collaborated as a team. :)
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Stefanwaal
Posts: 54
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11/24/2015 10:00:01 AM
Posted: 1 year ago
At 11/23/2015 11:29:17 PM, ColeTrain wrote:
At 11/22/2015 4:22:42 PM, Stefanwaal wrote:

>> I like your analysis, it's very nice and helpful. You should contact TheProphett or :myself if you'd be interested in an economic forum revival program, and perhaps :doing a few OPs yourself. Your efforts shouldn't be wasted individually when they can :be cultivated and collaborated as a team. :)

Wait, didn't you drop out of the economic revival program? Also, I though the program was dead because of that and the fact TheProphett wasn't able to find somebody to replace you.
ColeTrain
Posts: 4,306
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11/24/2015 2:07:24 PM
Posted: 1 year ago
At 11/24/2015 10:00:01 AM, Stefanwaal wrote:
At 11/23/2015 11:29:17 PM, ColeTrain wrote:
At 11/22/2015 4:22:42 PM, Stefanwaal wrote:

>> I like your analysis, it's very nice and helpful. You should contact TheProphett or :myself if you'd be interested in an economic forum revival program, and perhaps :doing a few OPs yourself. Your efforts shouldn't be wasted individually when they can :be cultivated and collaborated as a team. :)

Wait, didn't you drop out of the economic revival program? Also, I though the program was dead because of that and the fact TheProphett wasn't able to find somebody to replace you.

I didn't necessarily drop out -- I'm just not going to be active on DDO. That doesn't mean the program itself has to die... TheProphett never told me anything about shutting it down. He said he had famousdebater to fill in. You should consider joining as well. :) PM me.
"The right to 360 noscope noobs shall not be infringed!!!" -- tajshar2k
"So, to start off, I've never committed suicide." -- Vaarka
"I eat glue." -- brontoraptor
"I mean, at this rate, I'd argue for a ham sandwich presidency." -- ResponsiblyIrresponsible
"Overthrow Assad, heil jihad." -- 16kadams when trolling in hangout
"Hillary Clinton is not my favorite person ... and her campaign is as inspiring as a bowl of cottage cheese." -- YYW