Back in graduate school, I offered to make cookies for the student events so that they didn’t have to buy the store-bought ones. The first week they offered me $6 per dozen cookies. The night before, I whipped up a batch of chocolate chip cookies and brought in one dozen the next day. Easy. The next week, I was instead offered $8 per dozen cookies. Well, now we are talking. I brought in two dozen fresh chocolate chip cookies and collected my $16. What happened? The price went up, and the amount I was willing to supply increased. The trend continued the next week when a professor needed some cookies for his daughter’s birthday. He offered $12 per dozen. What did I do? Make four dozen this time! The law of supply is just that simple – as prices increase, the quantity supplied of cookies increases. The relationship between the price and the number of cookies willing to supply creates the supply curve.
The supply curve is ceterus paribus (holding everything else constant). The only thing changing in the situation above was the price of cookies. What happens if something else changes? It will cause shifts in the supply curve. At each price, you are willing to supply either more or less cookies. Here are a few things that will affect the supply curve:
Changes in input prices. The price of flour increases. Oh no! I need flour to make my cookies. In fact, I would say it is a key ingredient (input). What will I do? Now, at each price offered, I’m going to supply fewer cookies. At the price of $6, maybe I would only bring in ½ a dozen. And at $12, I’d bring 36 cookies instead of 48. This creates a shift in the supply curve to the left.
Now the opposite would be true if the price of flour fell. I’d be feeling generous. At $5, maybe I’d make more than a dozen cookies. The supply curve is going to shift to the right.
What else? Let’s say that currently you are using a hand mixer to make your cookies. Now, you have a stand mixer (we’ll call this a technology improvement). It takes you half the time to make cookies now. What will you do? Supply more cookies! Time is a cost… with less time, it is lower cost. Again, this technology improvement will cause shifts to the right in the supply of cookies.
Substitutes in production. We previously discussed how consumers substitute between goods. When the price of one good increases, you substitute towards another. But what about substitutes in production. What does that mean? Veganism is a thing right now. A lot of people are forgoing any and all dairy and meat for a more plant-based diet. How is this affecting the market? Well it’s hard not to notice, especially if you live in a major city. Vegan specific bakeries, restaurants, and products are popping up everywhere. More than that, bakeries and restaurants are offering vegan specific items. Imagine you own a bakery. You have a limited amount of space to bake and display your goods. What will you sell? Well, you want to sell what people will buy, of course! And you want to make a profit, so you will sell whatever makes the most profit. If the demand for vegan baked goods is going up, causing an increase in the price of vegan baked goods, then your supply of non-vegan goods will decrease (shift left) as you substitute towards making more vegan cookies. The bakery is substituting its time and resources from normal chocolate chip cookies to vegan chocolate chip cookies. See the second graph above.
Textbooks also talk about natural disasters affecting supply. Hmm… how does that relate here? Thinking back to my graduate school days, I experienced a huge natural disaster. A flood! A few feet of water rushed into the house where I was living. What happened to the amount of cookies I could make that month? Well, you better believed it decreased. I simply didn’t have the time to bake when I was cleaning off everything I owned (or throwing it away). At each price, I was willing to make fewer cookies. Now if the price was $12 per dozen, I might still find the time to bake (obviously not in my kitchen), so the supply wouldn’t necessarily go to zero but it certainly decreased. Refer back to the second graph.
That’s it! Supply: As the price of a good increases, more is supplied. As the price decreases, less is supplied. Factors other than the price changing will cause shifts in the supply, either to the right or the left.
Tip: sometimes it can be confusing to think about what direction the supply curve shifts. I just go back to the lessons above. I look at a single price, if the amount supplied would be less than before, the supply curve would shift to the left. If the amount supplied would be more than before, the supply curve would shift to the right. Try not to memorize the directions of shift, rather go back to your intuition!
Chocolate Chip Cookies (Vegan)
I’m not vegan, but I do love vegan food. The chocolate chip cookies I’m sharing with you have quickly become one of my favorite chocolate chip cookie recipes. Seriously. My friends, colleagues, and students are all initially skeptical when I tell them that they are vegan but are always shocked by the result. Not at all what you would expect!
2 cups flour (250 grams)
1 tsp. baking powder
¾ tsp. baking soda
½ tsp. salt
1 ¼ cup chocolate chips (approximate – I use dark chocolate bars that I chop up. If baking for a vegan or someone who can’t have dairy, check the ingredients. Most chocolate chips have some milk in it)
1/2 cup (100 grams) sugar
1/2 cup (110 grams) brown sugar. (Using a scale is so helpful for brown sugar! You don’t have to worry about packing it down)
1/2 cup plus 1 tablespoon grapeseed oil (I’ve also done vegetable oil; or the recipe says canola or another neutral oil. I find grapeseed oil makes them turn out perfect)
1/4 cup plus 1 tablespoon water
In a mixing bowl, stir the flour, baking powder, baking soda, and salt together with a fork or a whisk. Toss in the chocolate.
In a separate mixing bowl (but you can use the same whisk), combine the sugar, brown sugar, oil, and water. Whisk for one or two minutes until it comes together and is a smooth, creamy mixture. It will be thinner than peanut butter but will resemble it.
Pour one bowl into another (it doesn’t matter which) and combine with a large spoon or spatula. Once no flour is visible you are done stirring.
Now here is the key (according to the recipe – I’ve never tried it without doing this step): cover the batter with plastic wrap and put in the refrigerator for 12 to 24 hours. Yes, it will be hard to resist making the cookies. You can test the cookie dough in the meantime (if you don’t mind eating raw flour).
Once ready to bake, pre-heat the oven to 350 degrees. Scoop the dough into balls and put on to the cookie sheet. I’ve made small and large cookies. Both are delicious. Sprinkle the cookies with sea salt.
Bake for 9 to 13 minutes, depending on the cookie size. As with all cookies, you want to keep a close watch. If anything, ere on the side of under-baking these cookies. They will start to brown on the sides when they are done.
Cool on a cooling rack. Then enjoy! Can be eaten hot, warm, or cool.