Misunderstanding about what drives supply (versus demand)
Quite often, students have an instinctual assumption that if a product sells for too high a price, then it is not attractive for suppliers to produce it because no one will buy it. This may stem from two prior experiences, being a buyer who knows high prices aren’t desirable, or honing marketing/business strategy skills where firms may want to attract consumers with low prices. However, both work against the basic Law of Supply: if prices are higher, suppliers will supply more, and if they are lower, suppliers will supply less.
It is difficult to approach a market model where both supply and demand are in play simultaneously, but I try to break down the interaction as one with separate entities reaching a place of agreement, where eventually the agreed upon price aligns with an agreed upon quantity sold/purchased. The visual I use is that of a store shelf – as the supplier, the first task is to decide how many items to produce and put ON the shelf at any given price, before studying pricing’s impact on how many are taken OFF of the shelf and purchased, which is instead to do with demand. I also use a table, demonstrating the aforementioned Law of Supply, where quantities supplied directly relates to the prices set.
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