This post aims to provide a basic understanding of supply and the relationship between price and quantity supplied. If you’re unfamiliar with economics I recommend that you go back and read a few of my previous posts on the subject of economics in board games. In particular, I would recommend that you read the two (here and here) most recent entries where I give an introduction to the inner workings of market demand – the structure and intuition in those entries are very similar to this post.
Supply is a term for the decisions and behavior of sellers in a market. In other words, how sellers act given a set price of a particular good and how they change their behavior when the price of that good changes. At its core, the quantity supplied by sellers in a market is largely a function of profit. Profit is the difference between the sales price of a good and the cost to produce it. If sellers can gain more profit by producing more: then they will.
This positive relationship between price and quantity supplied is more formally referred to as the law of supply: all other things equal, when the price of a good rises, the quantity supplied of the good also rises, and when the price falls, the quantity supplied falls as well.
The relationship can, just like demand, be presented in a table and graph:
As you can see in the table above, as the price of apples increases the more apples a seller is willing to supply. For example, when the price is €2 the producer wants to sell 8 apples, when the price is €2.5 increases their quantity supplied to 10 apples. If the numbers in the table are put into a graph we get a curve (line) with a slope of about 45°. A curve relating price and quantity supplied is more commonly referred to as the supply curve. The supply curve slopes upward because, all other things equal, a higher price means that producers are more willing to sell goods on the market.
The above graph and table shows a single seller’s supply of apples, also referred to as individual supply. There are a few markets with a single seller – chances are you’ve heard of a thing called monopoly – but generally markets consist of more than one seller. Hence, we must also learn of the collective supply of all sellers in a market, or for short: the market supply. Just as market demand, the market supply is the sum of the supplies of all sellers. Thus, you simply add together the quantity supplied of all sellers in a market. Below is a table and graph for a market with two sellers:
So what does this have to do with board games? Glad you asked: many games have a market, a place where buyers and sellers meet to exchange things of value, and plenty of them cast the players in the role of sellers. Both indirectly or disguised in some narrative, and directly in the form of casting players in the roles of actual sellers of some good. For example, there are a plethora of games where players assume the roles of producers of some commodity. Like wine, burgers, or beer to name a few.
A common thread for all these types of games from the perspective of a game designer is that the game itself must simulate the other side of the market. I.e. if the players are sellers then the game must be the buyer. Thus, knowing how players will respond to different incentives could help designers navigate a game’s economy.
In theory, players should respond to changes to a game’s economy the same as sellers in any market. If you change the payoff from selling their goods in the game, like changing the amount of money a sell nets them, then they will most likely alter their production in response. If you increase the amount of money they get from a sell: then they will produce more.
In many cases players are given the opportunity to produce several different goods using the same inputs. Like being able to make several different kinds of wines from the same kind of grapes or several different variants of burgers. God knows there are a lot of burgers out there. Adding this feature forces players to chose between different alternatives and can open up a lot of design space to play around with. Adding this feature does however introduce the possibility of dominant strategies in terms of what good to produce: if players can gain more profit from producing one particular good over the others then the law of supply states, all other things equal, that they will produce more of that good than the others. Worst case, they completely ignore the other goods.
On the other hand, having all goods provide the same payoff makes the choice equally uninteresting: it does not matter what good a player chooses to produce. Thus, a designer must look to make the choice interesting in some other way: have different costs to produce resources, require some technology to be developed before the production of a good can start, or event cards could change the conditions for a production.
This last point touches upon the subject of what can cause a change in the market supply of a good. I.e. what can cause the supply curve to shift. This will be the topic of my next post – stay tuned!