When demand increases, two things typically both happen: quantities supplied increase and price increases. There is a name in economics for the quantitive relationship between these two effects: "price elasticity of supply". 1/
A good "infinitely" elastically supplied would see no price change at all in response to an increase in demand. All of the effect would be absorbed by an increase in quantity supplied. 2/
A good completely inelastically supplied would simply be price-rationed. In response to an increase in demand, no additional units would be produced at all, the fixed quantity supplied would just be allocated to the highest bidders, pushing all response into price. 3/
The "price elasticity of supply" of a good or service, or of goods and services in aggregate, especially over a short period of time is in part a technical question. 4/
If there are only so many "fabs" for microchips and an increase in demand, once fabs are at full capacity, supply becomes inelastic and chips are likely to be price-rationed. Over a longer term, fabs can be built, so long-term elasticity is usually higher than short-term. 5/
But price elasticity of supply, short-term and long, is not *solely* a technical question, especially in concentrated industries where firms have significant market power. 6/
Firms can *choose* to let demand play out as higher prices and margins, despite having the technical capacity to expand quantities supplied. The core problem of monopoly is that it's often in firms' interest to do this if they can, even though it's socially costly. 7/
Critiques of firms raising prices and enjoying higher margins during an inflation are not (usually) based on suggestions that firms should hold prices constant and revert to queue or lottery or relationship-based rationing of a good in shortage at its price. 8/
Implicitly, they are claims that firms are behaving as classical monopolists: Rather than maximizing technically feasible quantity-supplied in response to a demand shock, they are holding back quantity produced because they earn more from selling fewer goods at higher margins. 9/
A distinct critique is not of prices but of margins: If rising prices increase profit margins in aggregate, then labor costs are not rising at a rate proportionate to prices. Capital is using its superior bargaining ability to screw workers. 10/
The first critique blames firms for the inflation: Firms are screwing consumers by increasing production less than is technically possible and socially optimal. The second critique is agnostic to the cause of the inflation, but blames firms for using it to exploit workers. /11
These critiques might be right or wrong, fair or unfair, but they are ordinary, coherent claims about a capitalist economy. They don't amount to asking firms to provoke shortages by failing to raise prices, which would indeed be an odd ask. /fin
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