Monday, March 24, 2008


We'll get to demand later. For now, we're starting with supply. Yes, supply and demand are cliches, but they actually mean something and they mean something very important. I think it's important to tackle each one separately, instead of in one quick lesson like most economics texts. The reasons will become clear by the end of the next lesson.

We've talked about how economics is the study of resources and allocation and blah blah blah. Actually I just talked and you fell asleep. Actually I just typed. But who supplies these resources? Somebody has to. And why do they do it?

Well, the people who supply things are the suppliers, and they supply because they want your money. At least in a modern economy that's how this works. It's always possible there could be something else they wanted in exchange. In primitive barter economies they might just want one of your goats or your hot daughter. But for the most part, they want money, and they want as much as they can get out of you. So for the rest of this lesson we'll assume they are supplying for money.

Firstly, how are suppliers decided? Do they select themselves and choose what they will supply? That's pretty rare. Just imagine if you tried this. Let's say you like sculpting turkeys out of cheese. Like a centerpiece thing for parties. And let's say you blow big time at making cheese turkeys. And you charge five thousand dollars for each cheese turkey, so that you can become rich superfast.

How successful would you be? In the real world, not very. The only way I can see this scheme working is if you were a celebrity, but then people wouldn't buying your cheese turkeys exactly, they'd be buying a piece of your fame and a piece of prestige. The turkey would be perfunctory. And if you used Havarti it would be a Havarti perfunctory turkey.

Okay, so the turkeys aren't selling at $5,000 each and your landlord has disconnected the utilities for lack of payment. You're shivering in your bathroom eating canned yams, with loads of cheese turkeys surrounding you. Wow, I'm starting to feel sorry for you. Cheer up! You can always lower the price. People are usually willing to buy more at a lower price. I feel inclined to say that again for some reason, perhaps it's important.


There. I'll probably come back to that in some future lesson, hmm....

Anyway, you lower the price to $2,000. No takers. $1,000, and you put ads in the Sunday paper. You put on a turkey costume and strut around main street with a big sign inviting people to taste your cheese turkey. If the cops don't escort you away, you might be really lucky and land a sale to a passing billionaire. You keep slashing the price, dramatically. You have to scare up some money to get your lights turned back on. You finally get down to $20 per cheese turkey, the cost of the cheese and materials. You make one sale. And the bottom falls out of the cheese turkey market, all potential buyers are satisfied. You have a firesale at one dollar each from your window to passing school children, and then cry in despair. Man, I'm making myself miserable here.

But cheer up! Your floor-mopping skills are second-to-none! All of this time while nobody wanted to buy your cheese turkeys your cleaning skills were going to waste. You open up a maid service and the local mansion-dwellers can't hire you fast enough! You're working full-time and pay your rent, your bills, your bookie, and that person with "the photos."

And yet, as awesomely shiny as your floors are, they aren't as good as your cheese turkeys. The way you used a slice of Provolone for a neck waddle. Genius! Why couldn't you just do what you were best at and get paid for that?

Cuz nobody wanted it badly enough. They wanted it for one dollar each (except that one guy who paid fifty). Less than you were willing to supply them for. It wasn't your choice, but it was the choice of the market that you be a cleaner.

Now how can a market choose? It's not a person, right? No, actually, it's LOTS of people. When somebody says "let the market choose" or "market forces" what they are really talking about is the combined decision-making of everybody in the economy. Not enough people were willing to pay a price for which you'd be a cheese turkey-supplier, but there were enough people willing to pay you to clean. You don't like cleaning really, but they are paying you enough that you are willing to supply the cleaning.

So suppliers don't just choose what to supply, and us unwitting dupes just line up and take it at the price they charge, right? Of course not, it's completely obvious that the supplier doesn't alone choose what to supply. They have to respond to the market. As obvious as this is, a lot of people, from the non-smart to the very-smart, hold opinions or make arguments that assume suppliers work the first way, that they call all of the shots and we just take what they dish out.

"But Jacob," you say, "corporations have too much power. They are too big, one person can't make them change their ways." In the last respect you'd probably be right, one person can't, but this ignores a lot of factors in the economy. We'll get to those in the next lesson. As for "power" in an economy, it's not just measured in money. That's another thing we will get to someday.

I'd like to finish this lesson by giving examples of suppliers, because at this point you may be under the impression that they are all businesses. Not exactly.

1)A gas station owner. What does he supply? A gas station, and if need be lawyers.
2)Gas station manager. What does he supply? (yes, still a he) Management of said gas station. While not self-employed, he is still supplying something.
3)Gas station clerk. What does she supply? Grounds for divorce for the gas station manager's wife! Zing! Seriously though, she supplies service and general clerkly duties. I'd like to point out that I just made up the word "clerkly" and the auto-spell checker didn't try to correct me.

So you, in some way, are probably a supplier, unless you're some unemployed deadbeat. Or an heiress. Until next time......