I’ve by no means been accused of being hesitant to nitpick (and if anybody ever did make that accusation, I’d nitpick it aside!), however generally what looks as if a nitpick is definitely an vital level. Economists usually make what looks as if a nitpicky level to the non-economist. It often takes a kind like this: “Really, Tesla’s current worth reductions received’t improve the demand for Tesla autos – it can improve the amount demanded.” Or, we would say that the current spike in egg costs doesn’t scale back demand for eggs, it solely reduces the amount of eggs demanded. (Insert compulsory “all else being equal” clause right here, and please mentally carry it ahead for the rest of the publish! It’ll save me numerous keystrokes.)

Will increase or decreases in demand imply the demand curve has shifted proper or left. The identical is true for modifications in provide. Will increase or decreases in amount demanded (or equipped) means shifting up (or down) the curve, with out shifting its place. We might additionally communicate of the change in elasticity of provide and demand, which modifications how steep the curves are, however for now we are able to ignore that complication. Let’s simply keep on with these two concepts – shifting the curves and shifting alongside the curves.

I’ve been advised {that a} signal you’ve mastered studying a brand new language is once you expertise and perceive folks talking that language in your goals. I wouldn’t know – I lived in Japan for an prolonged interval, and I solely discovered to say about 4 phrases of Japanese that complete time. However in that spirit, an indication that you simply’ve totally absorbed and understood the significance of this seemingly nitpicky distinction is that this – the phrase “constructing new homes doesn’t improve the housing provide” doesn’t sound even barely odd to you.

Let me attempt to unpack that. Demand, roughly, means how a lot we would like one thing. A spike in egg costs will lead folks to purchase fewer eggs, however that’s not fairly the identical as saying folks need eggs lower than they used to. It solely means individuals are much less keen (or ready) to purchase as many eggs on the present worth in comparison with earlier than. Their demand for eggs hasn’t modified, however the amount demanded has. The demand curve stays unmoved. Demand will increase (or decreases) once we need one thing extra (or much less).

Provide, roughly, means the capability to supply one thing. Sticking with the instance of eggs for now, a wave of avian flu has decreased egg manufacturing capability – the availability curve has shifted to the left, reflecting the decreased capability. If demand for eggs had been to sharply lower, that’s, if folks had been to seek out eggs much less fascinating than earlier than, maybe as a result of sudden widespread well being issues about eggs or elevated adoption of plant-based diets, the demand curve would shift left and the equilibrium worth would fall, however the provide curve would keep put. If this occurs, the amount of eggs equipped would additionally drop, however the provide curve would keep put. The capability for egg manufacturing wouldn’t have modified, however suppliers aren’t keen to supply as many eggs on the new lower cost.

This fundamental concept results in a typical confusion I see from NIMBYs concerning the results of constructing new housing. Rising the availability requires shifting the availability curve – or, in different phrases, growing our capability to construct new housing. That’s not the identical as merely constructing extra housing in and of itself.

Think about a spot the place, as a result of tight laws, the provide of housing is mounted. Your first impulse is perhaps to assume this implies no new housing may be constructed, however that’s not fairly proper. It simply implies that the availability curve can’t shift. With a set provide curve, the amount equipped can nonetheless improve. When the demand curve shifts additional to the appropriate and the availability curve stays mounted, amount equipped can improve – however the equilibrium worth will improve together with it. Which means that in locations the place the availability curve is so tightly constrained as to be successfully mounted, new homes will solely be constructed solely when demanded by folks keen and in a position to pay prime greenback for them – that’s, the wealthy. Which means that regardless of new housing being constructed, the availability of housing hasn’t elevated.

For this place to extend the housing provide, versus merely growing the amount of housing equipped, the housing market would should be deregulated in a approach that will increase the capability to construct housing above what it was earlier than. This will take the type of eradicating restrictions on multifamily items or limits on how tall residence buildings may be, or eliminating minimal lot sizes, or streamlining a laborious and costly approval course of to construct housing. If these sorts of measures had been to be taken, then we are able to say that the housing provide has elevated even previous to any new building.

Lacking this seemingly nitpicky distinction is the supply of the widespread confusion amongst lots of the NIMBY sorts I discussed earlier than. They may see a spot the place housing is pricey (as a result of restricted provide), however in addition they discover that new housing continues to be being constructed. However this new housing, removed from making housing extra reasonably priced, is sort of solely costly housing, solely reasonably priced by the wealthy. This, of their thoughts, undercuts the argument that growing the housing provide will decrease housing costs – as a result of they don’t comprehend the distinction between “growing the housing provide” and merely “constructing extra housing” – that’s, the distinction between a rise in provide and a rise within the amount equipped.

Kevin Corcoran is a Marine Corps veteran and a advisor in healthcare economics and analytics and holds a Bachelor of Science in Economics from George Mason College.