Sorry to repeat myself but by definition a change in demand by itself can not effect the supply curve, short or long run. If Policonomics says otherwise then it’s wrong. I’m an academic economist, the author of this textbook, and the host of this podcast.
Given your credentials, I can’t fathom you disagree that shifts in demand can cause shifts in the short-run supply curve in the long-run. E.g. if lots of people start/stop eating meat, the short-run supply curve will look different 5 years from now due to that change alone.
Given that I believe you agree with that, I deduce that you only mean that changes in demand cannot shift the short-run supply curve in the short-run, nor shift the long-run supply curve in the long-run. With that I do agree by definition.
Funny that the only post by someone acknowledging negative-sloping long-run supply curves AND refraining from advocating a prior that meat industries are increasing-cost (yay; that’s all I really want!) ends up sounding like a disagreement anyway due to semantics : ]
Given our confidence for opposing positions and your credentials my best guess is that there’s a miscommunication, in which case my guess on your correctness won’t be well defined. Perhaps there’s some critical word I’m using colloquially that has an importantly different meaning in economics.
Perhaps there’s some critical word I’m using colloquially that has an importantly different meaning in economics.
Yes and it’s “supply curve”.
Consider one point on a a firm’s supply curve which let’s say represents price=$1 and quantity=1000. This means that in the hypothetical situation in which this firm could sell as many goods as it wanted at a price of $1, it would want to sell 1000 goods. There is no reason why a few customers not wanting to buy the product would change this. True, a few customers not buying the product would change the demand curve, which would change the market price, which would change where on the supply curve you will end up, but it won’t change the supply curve. The supply curve only changes when holding price constant (and assuming the firm can sell as much as it wants at this price) the firm wants to sell a different amount. This might seem like a small point, but to correctly use supply and demand analysis you need to distinguish between moving along a supply curve (because price changes) and moving to a different supply curve.
I think you are ignoring an important point that erratim is making. If demand is decreased that most certainly can cause later changes in the short-run supply curve. What does the short-run supply curve look like for buggy whips in 2015? Is it the same as it was in 1915? The firms that exist couldn’t satisfy the 1915 demand for buggy whips in the short term except at outrageous prices. That’s because decreasing demand led to most of those firms disappearing, so that all that’s left is artisan hobbyists making buggy whips for Charles Dickens re-enactments (I actually don’t know anything about buggy whips, but you get the point).
Changes in demand can change the level of investment in an industry, which clearly changes it’s short-run supply curve.
Edit: Fixed accidental replacements of “supply” with “demand”
This is really a definition thing. The supply curve for buggy whips is greater now than in 1915 (meaning that if you held price constant firms would be willing to produce more of them now than in 1915) because it costs less to make them, it’s just that the demand is so low that the market price is low and therefore few buggy whips get produced.
Does this imply that short-run aggregate supply curves are independent of the level of investment currently existing in an industry? So, if you have a factory that can only produce 100 widgets, your short-run aggregate supply curve continues on as if you had the ability to have more factories?
Does this imply that short-run aggregate supply curves are independent of the level of investment currently existing in an industry?
No.
I’m guessing this is your argument: I buy fewer widgets, so firms invest less in widget factories, which changes the supply curve. But what’s happening is you buy fewer widgets, which lowers price, which moves firms to a different point on their supply curve which has them building fewer factories.
This kind of thing is really easy to get confused about, and isn’t important unless, as with the original post, you want to use supply and demand curves to trace out how you can move from one equilibrium to another.
For every possible price the short run supply curve says how much you produce in the short run, whereas the long run supply curve says how much you will produce in the long run. In the simple perfect competition model the long run is enough time for firms to change all of its inputs.
I think I know the difference between changes in supply and movement along the supply curve, and your post confuses me. I take the OP’s point to be that, in the long run, a change in demand shifts the short-run supply curve. This is exactly the sort of long-run dynamics scenario McAfee talks about (section 4.2.2, e.g. figures on p. 106). Is McAfee wrong or am I really missing something?
It gets confusing when you talk about how a long run change in demand can shift the short run supply curve when from a social welfare viewpoint what we should care about in this situation is the long run supply curve which wouldn’t change, but reading McAfee I can see that I should not have been so certain that I was right. Thanks!
Sorry to repeat myself but by definition a change in demand by itself can not effect the supply curve, short or long run. If Policonomics says otherwise then it’s wrong. I’m an academic economist, the author of this textbook, and the host of this podcast.
Given your credentials, I can’t fathom you disagree that shifts in demand can cause shifts in the short-run supply curve in the long-run. E.g. if lots of people start/stop eating meat, the short-run supply curve will look different 5 years from now due to that change alone.
Given that I believe you agree with that, I deduce that you only mean that changes in demand cannot shift the short-run supply curve in the short-run, nor shift the long-run supply curve in the long-run. With that I do agree by definition.
Funny that the only post by someone acknowledging negative-sloping long-run supply curves AND refraining from advocating a prior that meat industries are increasing-cost (yay; that’s all I really want!) ends up sounding like a disagreement anyway due to semantics : ]
NO!
I’m curious, given my credentials with what probability do you think I’m right?
Edit: I’m embarrassed by this, but I retract what I said.
Given our confidence for opposing positions and your credentials my best guess is that there’s a miscommunication, in which case my guess on your correctness won’t be well defined. Perhaps there’s some critical word I’m using colloquially that has an importantly different meaning in economics.
Yes and it’s “supply curve”.
Consider one point on a a firm’s supply curve which let’s say represents price=$1 and quantity=1000. This means that in the hypothetical situation in which this firm could sell as many goods as it wanted at a price of $1, it would want to sell 1000 goods. There is no reason why a few customers not wanting to buy the product would change this. True, a few customers not buying the product would change the demand curve, which would change the market price, which would change where on the supply curve you will end up, but it won’t change the supply curve. The supply curve only changes when holding price constant (and assuming the firm can sell as much as it wants at this price) the firm wants to sell a different amount. This might seem like a small point, but to correctly use supply and demand analysis you need to distinguish between moving along a supply curve (because price changes) and moving to a different supply curve.
I think you are ignoring an important point that erratim is making. If demand is decreased that most certainly can cause later changes in the short-run supply curve. What does the short-run supply curve look like for buggy whips in 2015? Is it the same as it was in 1915? The firms that exist couldn’t satisfy the 1915 demand for buggy whips in the short term except at outrageous prices. That’s because decreasing demand led to most of those firms disappearing, so that all that’s left is artisan hobbyists making buggy whips for Charles Dickens re-enactments (I actually don’t know anything about buggy whips, but you get the point).
Changes in demand can change the level of investment in an industry, which clearly changes it’s short-run supply curve.
Edit: Fixed accidental replacements of “supply” with “demand”
This is really a definition thing. The supply curve for buggy whips is greater now than in 1915 (meaning that if you held price constant firms would be willing to produce more of them now than in 1915) because it costs less to make them, it’s just that the demand is so low that the market price is low and therefore few buggy whips get produced.
Does this imply that short-run aggregate supply curves are independent of the level of investment currently existing in an industry? So, if you have a factory that can only produce 100 widgets, your short-run aggregate supply curve continues on as if you had the ability to have more factories?
No.
I’m guessing this is your argument: I buy fewer widgets, so firms invest less in widget factories, which changes the supply curve. But what’s happening is you buy fewer widgets, which lowers price, which moves firms to a different point on their supply curve which has them building fewer factories.
This kind of thing is really easy to get confused about, and isn’t important unless, as with the original post, you want to use supply and demand curves to trace out how you can move from one equilibrium to another.
Then what is the difference between short run and long run aggregate supply? I’m confused.
For every possible price the short run supply curve says how much you produce in the short run, whereas the long run supply curve says how much you will produce in the long run. In the simple perfect competition model the long run is enough time for firms to change all of its inputs.
I think I know the difference between changes in supply and movement along the supply curve, and your post confuses me. I take the OP’s point to be that, in the long run, a change in demand shifts the short-run supply curve. This is exactly the sort of long-run dynamics scenario McAfee talks about (section 4.2.2, e.g. figures on p. 106). Is McAfee wrong or am I really missing something?
It gets confusing when you talk about how a long run change in demand can shift the short run supply curve when from a social welfare viewpoint what we should care about in this situation is the long run supply curve which wouldn’t change, but reading McAfee I can see that I should not have been so certain that I was right. Thanks!