[p2p-research] [Open Manufacturing] Re: Fwd: More on the Supply and Demand Curve

[Paul D. Fernhout]

ben lipkowitz wrote:
> On Thu, 2 Jul 2009, Paul D. Fernhout wrote:
> 
>>   http://en.wikipedia.org/wiki/Supply_and_demand
>>
>> OK, so I downloaded some free software (Inkscape) and made a new version of
>> that, derived from the Wikipedia source. :-)
>>
>> It is here:
>>   "The Supply and Demand Curve, if demand is ultimately limited"
>>   http://www.pdfernhout.net/Supply-and-demand-limited.svg
>>
>> Where the demand curve touches the Y axis is labeled "Poverty", where the
>> demand curve touches the X axis is labeled "Demand Saturation", and where
>> the supply curve flattens is labeled "Abundance" with a cornucopia spiral. I
>> hope the SVG renders well for others, especially with the translucent sections?
> 
> hum. i think your theory is all wrong - prices actually go down when 
> supply increases. the graph should look like this instead:
> http://openmanufacturing-dev.googlegroups.com/web/Supply-and-demand-limited-v2.svg

You're right, something is wrong in my graph about the blue supply curve
line. I agree the supply curve I drew with a tail to the right has problems.
The tail perhaps should at least go up and down at the position of abundance
from top to bottom, representing a divide by zero error as demand collapses
at some saturation point, or alternatively a "Vertical supply curve" as the
Wikipedia page mentions. Also, you are right it does not reflect dropping
costs from mass production or continually improving design or progress
towards obsolescence.

I like your graph much better, and agree it is more accurate, including the
"unrecognized art" part at the start, and also the "artificial scarcity"
part at the end. Thanks for fixing it.

You are also capturing this idea in Wikipedia:
   http://en.wikipedia.org/wiki/Supply_and_demand
"Negatively sloped supply curve: There are cases where the price of goods
gets cheaper, but more of those goods are produced. This is usually related
to economies of scale and mass production. One example is computer software
where creating the first instance of a given computer program has a high
cost, but the marginal cost of copying this program and distributing it to
many consumers is low (almost zero)."

Still, while I agree with the unappreciated art bit, I think it clouds the
parallel to the original, and so could be left out of a simple version where
we just see a typical demand curve but touching the axes. I was trying to
stay as close to the original curve as possible. Still, perhaps that is just
impossible overall? In a way, supply and demand curves mean less and less if
you just assume you will print as many of something as people want, at an
insignificant cost (a real cost may exist, but it is not considered any more
than most US American people count grains of salt when they salt their food).

The supply and demand curve in general is an awkward concept because it does
not consider time (and when I read the graph I need to keep not putting time
on the X axis, and yet it also seems pretty natural to follow the blue
supply curve as if it were a path over time starting at zero, which
technically it is not?). So, you have a curve of supply with different
amounts at the same price, because it reflects a change in technological
capacity based on previous demand or other progress. In general, this supply
and demand curve has woven into it the notion of ignoring ongoing
technological progress or any sort of hysteresis (ratcheting effect) as
costs move back and forth. The curves maybe should be three dimensional (or
have more dimensions based on other factors).

I see you go further in your next post with new graph, essentially
reflecting this time aspect more, but I like this first one more right now
(I don't fully understand your next one yet).

The key issue though is that the graph needs to touch the X axis to reflect
availability of product at no cost, as well as the fact that even at free,
there is limited demand. So, the issue is, how does the rest of the graph
look to get there? :-) I'm not sure touching the Y axis is so essential to
this point about abundance, although it is interesting for symmetry to think
what it means.

I see now an assumption in the original supply and demand curve -- that no
one is willing or able to produce stuff for free. Also, I see there is a
quantization issue, in that goods are produced in discrete units, not
continuous amounts, which in mathematics can also invalidate some
assumptions (discrete versus continuous math).

> what happens when demand goes negative? (ever read "autofac" by p.k. dick?)

I'm not sure. I have not read that story, but just read the summary. Is that
a gift economy? :-) Maybe not.

Negative demand was perhaps is "The Midas Plague", part of a large book:
   http://en.wikipedia.org/wiki/Midas_World
where people had a ration book of stamps for things they were supposed to
use up or they would get in trouble with the "ration board" and be force to
consume even more as punishment (all to keep the economy moving). Nobody
wanted to consume so much, and poor people lived in sprawling mansions and
were forced to eat until the point of pain. The ultra rich in society were
those who did not have to consume very much. The rich could be gracious by
accepting big gifts that went towards other people's consumption quotas, so,
in the story, the wedding guests would all take things away from the bride
and groom to make their consuming life a bit easier. :-)

By the way, noting here:
   http://en.wikipedia.org/wiki/Supply_and_demand
"Two assumptions are necessary for the validity of the standard model.
First, that supply and demand are independent and second, that supply is
"constrained by a fixed resource." [4]If either of these conditions does not
hold, then the Marshallian model cannot be sustained.[5]"

Self-replicating systems (like an automated factory) would seem to couple
supply and demand, a well as create a potentially infinite resource of
productive capacity that could access all the resources of the planet and
the solar system. So, I can see why self-replicating systems (even if just
implemented with humans doing peer production) might break these assumption
and thus invalidate the classical supply and demand curve.

Also of interest in seeing limits to the validity of this curve in
explaining macroeconomics is this:
   http://en.wikipedia.org/wiki/Supply_and_demand
"""
Macroeconomic uses of demand and supply: Demand and supply have also been
generalized to explain macroeconomic variables in a market economy,
including the quantity of total output and the general price level. The
Aggregate Demand-Aggregate Supply model may be the most direct application
of supply and demand to macroeconomics, but other macroeconomic models also
use supply and demand. Compared to microeconomic uses of demand and supply,
different (and more controversial) theoretical considerations apply to such
macroeconomic counterparts as aggregate demand and aggregate supply. Demand
and supply may also be used in macroeconomic theory to relate money supply
to demand and interest rates.
"""

Anyway, I really appreciate you improving the graph. Thanks.

I can wonder in general how much potential there is to take these sorts of
basic economic concepts and transform them for alternative assumptions like
abundance, peer production, a gift economy, a basic income, shorter work
weeks, etc.?

--Paul Fernhout
http://www.pdfernhout.net/