“Build it and they will come” the basics of supply theory. Markets only exist when supply and demand interact. Suppliers must have both the willingness (incentive) and ability (technology) to offer product to the market.

Supply Incentives Suppliers must have information about what consumers want and how they want it to perform. Information should be both truthful and timely. There must be stable market distribution systems in place which are safe and reliable. There must also be fair and binding conditions on the way in which suppliers will be paid for their goods and or services. These conditions must in combination exceed the “opportunity cost” of all alternatives.

Opportunity Costs These are the costs to any agent of undertaking Option I over Option II. Opportunity costs include the alternative of –“doing nothing “passing up the opportunity” and placing the investment funds in the bank earning interest. –attempting to purchase the product elsewhere and re-selling it rather than trying to produce it.[Arbitrage] –attempting to “dominate the market” and overinvesting in production capacity in order to manipulate the market later on. All Options have implicit opportunity costs and in the marginal framework imply that no supplier will supply goods and or services unless these costs are overcome and this will generate the market entry point and the process of supply generates an economic surplus.

Technology and Capital There are many ways to skin a grape and as result there are many different technologies that affect production. These technologies are only definite over specific ranges of output and rely on capital…machinery and equipment needed to produce a product in addition to labor. Capital in very contentious and can be viewed in may different ways : –“Disembodied Labor” Capital goods were made themselves by other workers in order for their impact on the economy to last indefinitely or until the capital wears out. [Marx] –“Management Legacy” Capital goods were available because of the set aside decision made by managers in the past who “set aside” some resources in order to develop new products or improve efficiency in the long run. [Schumpeter]

Summary of Supply Pressures Opportunity costs produce a market option for a supplier. Technology combines labor wages and capital rents to generate a cost structure that determines whether or not an agent will supply to the market. The suppliers generate economic surplus by accepting an option and in the production process also allows a subgroup of economic agents to enter the equation [suppliers] which share in the economic surplus. Suppliers in turn may either supply capital or labor directly or indirectly by producing intermediate products that go into the manufacture of a final product which remains in control of the final market supplier or producer.

The Supply Curve Technology A is higher cost than Technology B and generate higher economic surplus for Producers and Suppliers. Price Quantity Market Entry Point A B Return to management By producers.

Analytics of Supply Supply requires consumers to demand a product and this draws entrepreneurs to consider producing to “meet the demand”. Producers “meeting the demand” may manufacture or repurchase products to meet the demand and in so doing will employ inputs from others in the form of workers or capital in order to meet the anticipated demand. The result is economic surplus for consumers who get something that they would not otherwise be able to acquire, producers who are able to overcome scarcity (as seen by consumers) and pursue a profit, and suppliers acting as producers who in turn offer their labor or capital to the market.

Economic Surplus and its Participants Surplus only exists if a market exists! Price Quantity Demand Supply Pe Qe Consumer Surplus Producer Surplus Supplier Surplus