Reply To: High demand causes entrepreneurs to…


The dynamic I described does not depend at all on entrepreneurs lowering costs through finding more efficient methods of production. It is set in motion by increased demand for the good produced by the entrepreneur. Higher demand will increase the price of the good. The higher price of the good will increase the net income of producing it (even if the cost structure stays the same). The entrepreneurs’ Increased supply of the good will then moderate its price and the entrepreneurs’ increased demand for factors of production will increase their prices. These changes will eliminate the extra net income from further increased production.