Normal supply-demand models assume the existence of functions S(P) and D(P) and the equilibrium price and quantity can be calculated by finding Q and P such that Q=S(P)=D(P). To construct such functions one need to look at price changes, ceteris paribus. Firms adjusting their production to the demand level means that the latter assumption breaks, thus the functions S() and D() cannot be written purely in terms of P, rather, we'd need S(D,P) and D(P) and finding Q = S(D,P)=D(P).
Of course, since D depends purely on P, then we can write S() purely depends on P. Thus, we could write a function of the form S(D(P),P) and calculate the supply curve. But such function need not not be well behaved, dS/dD should be positive and dD/dP negative and thus downward price movements, according to this cause-effect relationship (lower price -> higher demand -> higher supply), would increase supply.
Off topic question: My post was worded in a mathematical fashion. Is that form of writing welcome by economists, or would another way of expressing the ideas be preferred?
How can companies adjusting production to demand be squared with normal supply-demand models?
byu/KING-NULL inAskEconomics
Posted by KING-NULL
1 Comment
They are seeing that the “quantity demanded” from them at their current price is greater than they are currently producing and shfting up their own supply curve. This is exactly as expected. The “lie” in economics 101 is that we don’t talk about how we shift from one equilibrium to another, we just assume it happens instantaneously.