Source: Foundation for Economic Education
by Peter Jacobsen
“So what’s the difference between increasing the money supply and increasing the supply of a commodity like [olive] oil? To start, let’s consider the effect of increasing the supply of a commodity like oil. In order to sell oil, producers must bear some cost. For example, if producing a cup of oil costs $1 sellers must receive at least $1 in order to be willing to produce. Based on this, it may be tempting to claim that prices are determined by cost, but this is not right. Prices are completely determined by consumer valuations which often manifest in terms of costs.” (09/06/23)