> If I used to produce 100 units per month because that's how many I could sell, but now I know I can sell 10000 units per month, that is incentive enough to increase production.
For what it's worth, this isn't how "supply and demand" works in economics.
The idea is that a given firm is already producing as much as they can at that price. There's not usually a ton of slack just laying around that could respond to a spike in demand. For instance, my wife who works at a soap factory right now, has seen a ton of demand. They would love to increase production to accommodate but it's just not immediately possible, without retooling the factory. They're managing to increase supply a little, by not offering as many varieties of scents and such, but that's the extent of what they can do immediately.
The reason prices increase with an increase in demand, according to standard economics orthodoxy, is because that allows more firms to enter the market, as well as existing firms to do less efficient things (more workers, more expensive supply chain, etc), to meet that demand.
Yeah, the higher output factory idea only works to the extent that you can find factories that can still add a shift and, more importantly, can find all the upstream capacity to support them doing so.
You can have issues with the economics of supply and demand, but as you outline very well, there's not really a button that just scales supply when you need it.
For what it's worth, this isn't how "supply and demand" works in economics.
The idea is that a given firm is already producing as much as they can at that price. There's not usually a ton of slack just laying around that could respond to a spike in demand. For instance, my wife who works at a soap factory right now, has seen a ton of demand. They would love to increase production to accommodate but it's just not immediately possible, without retooling the factory. They're managing to increase supply a little, by not offering as many varieties of scents and such, but that's the extent of what they can do immediately.
The reason prices increase with an increase in demand, according to standard economics orthodoxy, is because that allows more firms to enter the market, as well as existing firms to do less efficient things (more workers, more expensive supply chain, etc), to meet that demand.