No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter Four: Supply 86 INTRODUCTION It’s pretty easy to think about demand, because we can all relate to wanting things; we want things all the time. Like an In-N-Out burger at lunch time…aah! Ok, so maybe you haven’t been privileged to have one (yet), nevertheless you can similarly think of your tastiest lunch time favorite. If I ask you to think about all the things you’d like, we could probably still be talking next week. But if I asked you about all the things you’d like to produce, we’re likely to have a significantly shorter discussion. Some of you have never even thought about producing anything. But you likely have thought about what you want to do later in life, and most of us will join larger teams involved in producing goods and services to serve consumers. All of us will be required to produce (or supply) in order that we may consume (or demand). One of the early economists, J. B. Say, introduced the Law of Markets , where “products are paid for with products.” Or, more frequently stated by Keynesian economists, “supply creates its own demand.” Say’s Law (as it has come to be known) is controversial since John Maynard Keynes ridiculed a straw man of Say’s Law in his famous General Theory . We will review this controversy more fully in chapter 17, but for now, the central truth is that when we produce, the products we create become the basis of our purchasing power—we have something to trade. Products are indeed paid for with products, even though much is indirect (i.e., we sell our goods for money, and use the money to purchase other goods). As the Apostle Paul says in Ephesians 4:28, even the thief should labor, “performing with his own hands what is good, so that he will have something to share with one who has need.” We must produce to be able to have something to serve others, and they in turn produce in order to serve us. Mutually beneficial cooperative trade requires both parties to not only demand, but to supply . Say’s Law is humorously captured in this video. EVERY DEMANDER POTENTIALLY A SUPPLIER? In chapter 3 we had an example dealing with AirPods and how our individual demand is affected by price. But there is a corollary that we haven’t yet considered: we might also become sellers of AirPods, if the price is right! Let’s assume the following scenario: say that you are an AirPods fanatic and have four pairs of AirPods Pros. The AirPods Pros are well worth the $250 each that you paid for them; in fact, you would have been willing to pay $500 for the first one. Fortunately, you didn’t have to, since the market price was only $250. But in a terrible tragedy for music aficionados, the AirPods factories in East Asia producing them were significantly sabotaged by disgruntled workers demanding higher wages, eliminating all current production. To reconfigure other factories, Apple estimates at least a six-month break in production. Primary market sources sell out of AirPods within hours, but a secondary market offers new in-box AirPods devices for $1,000 per pair. Used AirPods quickly rise in price as well, with $800 per used pair becoming the going rate. So what do you do? Law of markets: The purchasing power (money) necessary to enable someone to demand goods in a market comes from their income earned while producing other goods.