So we saw how the change in price of related products like substitutes and complements can affect demand. Now we're going to see how prices of related products can affect supply as well. In this case, we're going to be talking about substitutes in production. Instead of buying butter, we're going to buy margarine because, to us, it doesn't make a difference. We're discussing substitutes in production, which means our factories are usually set up to make more than one thing. So instead of making one product, when we hear that another product has a price increase, maybe we'll make that other product instead. Does that make sense? We'll do some examples here. The idea is that when the price of a substitute in production increases, the supply of the original product will decrease. Let me explain this further.
The relationship here is inversely proportional, and it is important to note again that this is not a change in the price of our product but a change in the price of a related product. When we have a change in price, we just move along the supply curve, but in this case, it's a price change of another product. Here are some examples of possible substitutes in production. There's no hard and fast rule, but these are things that could probably be produced in the same factory with minimal changes to the factory setup.
The first example involves basketballs and volleyballs. Let's say that the market price of a basketball goes up; consequently, the supply of volleyballs is going to go down, assuming they are substitutes in production, which we are assuming in these examples. So, instead of making volleyballs, manufacturers will start producing more basketballs. Similarly, let's discuss corn and wheat. Let's do the opposite this time: if the price of corn goes down, assuming they're substitutes in production, the supply of wheat will go up. This is because farmers might decide that corn is not as profitable anymore, so they will switch to growing wheat instead.
Finally, consider pizzas and calzones. If the price of pizzas were to increase, producers would make fewer calzones and more pizzas, hence the supply of calzones will decrease. Notice how these price changes are not in the product that we're discussing the supply for but in the other substitute, the substitute in production.
Let's try an example to further clarify this concept.