Post #2747963

There's a common misunderstanding that reduction of supply by x% will increase price proportionally. This is being taught in basic economy classes but it comes with assumption of preftectly flexible market. This is NOT how things are in real life. In real life manufacturing runs at less than 100% capacity and as long as it's below that number price doesn't move. Manufacturers usually prefer to increase production first and rise prices only after reaching full saturation. Once it happens market turns into auction: prices rapidly grow until somone is unwilling to buy. If demand is inflexible (meaning it doesn't react to price changes by much) this can be very brutal.