Wind of change in supply

This post is a continuation of a previous post aiming to provide a basic understanding of supply and the relationship between price and quantity supplied.

First some repetition: supply is a term for how sellers in a market act given a set price of a particular good and how they change their behavior when the price of that good changes. The law of supply states that 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. If this sounds unfamiliar to you then I recommend you go back and read my previous post on supply before reading on.

As you might recall, we ended our last post making a distinction between individual supply and market supply. Individual supply is how a single seller responds to a change in price, market supply is the sum of all individual supplies in a market and how the market as a whole responds to a change in price. These responses describe movements along a supply curve, this post will instead focus on how changes in the factors governing supply can cause a shift in supply and by extension the market price.

A shift in supply is when some factor, other than price, causes a change in the quantity supplied. Take the market for apples as example, producing apples requires a lot of different inputs – like seeds, tools, machines, workers, and pesticides. If the price of pesticides increases then producers will have to pay more money in order to keep their apples from being eaten up by worms and other pests. This increased cost of production means that their margins will decrease and thus selling apples will, all else equal, become less profitable. As profits decrease the willingness of sellers to bring apples to market will decrease. For some the increase in costs might even mean that they can no longer afford to produce apples: forcing them to pull out of the market.

Just like with demand, a shift in supply can also be presented graphically. Below you will find both a table and graph presenting a shift in supply using the above example of an increase in the cost of pesticides.

More expensive pesticides makes it so that sellers provide fewer apples for every price level – profits are lower than before.

A change in input prices, technology, expectations, the number of sellers, or natural/social factors will bring about a shift in supply. These are five broad catch all categories for what can bring about a shift in supply. Of course there are many occurrences that could bring about a shift in supply, but these five are the most commonly used. Here are a few words about each category:

Input prices: to produce some output sellers most often require some inputs. In the case of apples we already mentioned things like seeds, tools, machines, workers, and pesticides. Buildings and land, or I guess orchard if we’re talking apples, also count as inputs. Nevertheless, whenever the price of an input rises the profits decrease and the sellers supply fewer apples. If the topic of inputs interests you I wrote a bit about the so-called factors of production in some of my earlier posts here, here, and here.

Technology: the technology used to convert inputs into some output can have a profound effect on the cost of production. Imagine for example when the invention of pesticides came along and drastically reduced the time and effort required to protect your apples from pests – the cost of producing apples likely decreased tremendously. More formally, advances in technology increases productivity: reducing the amount of inputs required to produce a good.

Expectations: the expectations about the future influences how many goods a seller are willing to put on the market for sale. If a seller expects the price of apples to increase in the future, like a weather forecast predicting snow storms in the middle of summer or something, then they might put some of their current produce in storage to sell at a higher price at a later date.

Number of sellers: The number of sellers in a market has a direct effect on the market supply of a good. Let’s say a number of Swedish apple orchards stop their production suddenly, and the remaining producers are unable to expand their productions, then supply of apples will drop and the supply curve shift.

Natural/social factors: natural factors are things such as changes in weather, natural disasters, changing soil quality, or diseases. Like mentioned above, a snow storm ruining a bunch of apples counts as a natural factor. Social factors are changes in society that affect a production, like changing attitudes and social expectations. For example, more producers might want to produce organic food as it aligns better with their values, or they might want to have a more carbon neutral production. Both of these might increase the total cost of production and thus reduce the market supply.

So what game design lessons can we learn from knowing all this stuff about supply?

I think that designers could learn a great deal from thinking of changes or events in their games in terms of supply. A lot of games have resources that could be thought of as inputs in a production. Also, plenty of games cast players in the role of a producer/seller – and even the ones that don’t can probably fit in the framework.

For example, just like for inputs in a production, it should be true that if you raise the price of resources in a game then the cost of production should go up, and by extension players should become less willing to use it. A big part of many games about identifying efficiency or increasing productivity – finding the path to victory while using as few resources as possible. If you as a game designer want your game to have multiple paths to victory then you should be careful and particular when setting the prices for acquiring resources. If one resource is significantly cheaper than the others then, all other things equal, players will have a strict preference of that resource of the others which might make other strategies less viable.

Technologies are an explicit part of many games and a common feature in those games is that new technology improves efficiency or unlocks some new features or mechanics. Utilizing improved technologies can be a great way to bring a sense of progression to your game – even if it’s something as modest as reducing the cost of producing apples.

Managing player expectations in a game is also greatly important if you want to create a dynamic and interesting game. If your game is deterministic, i.e. all players know what’s going to happen at any given point, then your game can most likely be solved and will probably end up with a pretty low replayability factor. Creating expectations about future values lets players plan ahead of their current turn and form strategies, and changing expectations can be an interesting way to keep players on their toes.

The number of players (sellers) will affect many parts of a game. Just like in a market as you increase the number of players (sellers) you also increase supply. Having more players means more resources will be circulating in your game’s economy and competition will increase. Everyone who’s ever played an economic game with three or more players knows that often times a winning strategy is to find a path to victory that’s different from the others.

Natural and social factors are more tricky: there’s no straightforward translation to board game mechanics or otherwise. But, it can be useful to consider that natural and social occurrences can be used to “spice up” a game’s economy. Perhaps you could have event cards that changes the cost of production for the players. Maybe a tsunami hits the country-side leveling it with the ground or an in-game government comes in and raises taxes. Let the imagination flow.

That’s it for now, but I’ll leave you with an exercise:

Challenge: take your favorite game and try and think of what would constitute the supply in that game. Then, think about what would happen to that game’s economy if you would shift supply. What happens to the game if you suddenly increase the price one or more of its resources? What if you allowed for it to have more players than normally allowed?

Feel free to leave any and all thoughts below, until next time!

/Daniel

2 Comments on “Wind of change in supply

  1. Thanks for the read!

    The game I’m building doesn’t really have a market, but there are health points and mana points. I’ve been thinking about removing a common way of restoring hit and mana points, and your blog post made me realize that this is – in some ways – affecting a marking. You will no longer be able to “buy” hit and mana points in the the most common way, which will affect the availablility and thus how the values of hit and mana points are percieved. (Which is exactly what I want to achieve.)

    Thanks again!

    1. @Johan, the pleasure’s all mine! Yes, I’m guessing you want to increase the perceived value of health and mana buy making them more scare? In that case removing the opportunity to buy them is equivalent to reducing, what I in the post call, the number of sellers in a market.

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