Reply To: High demand causes entrepreneurs to…


I was at the bar this weekend with another economist who normally agrees with 95% of what I say, and we discussed this topic.

He basically said: Now, what you appear to be arguing is that entrepreneurs will respond to an increase in demand by finding more efficient ways to produce the product.

You create a causal link between the increase in demand and the increase in supply by saying that entrepreneurs anticipate the increase in demand. The fact is that the causality you are implying is artificial. If entrepreneurs can find more efficient ways of producing, they’ll do so regardless of whether demand increases (or is anticipated to increase) or not.

Now I don’t know which end is up.

But I’m thinking the argument is not that entrepreneurs become more efficient, they build more machines, factories, etc. They expand production.