Okay, after processing everything over the past few days, I think I understand how to shift my understanding of supply and demand. Previously I had thought of supply as “there is this much stuff to sell.” It would be better to view as “it costs X per unit to produce Y units at market.” So increased productivity can means producing more Y for the same X, or in the case of reducing labor like you said producing the same Y for a lower X. Demand can be thought of as “N units can be sold for Z currency each.”

Unless you are in a monopoly, Y will always be a fraction of the N units actually sold, so as long as the Z of the total market is higher than your X to produce a profit is made. This is complicated by scenarios where company A sells their product at a different Z than company B, but this model allows for the changes to the supply side that don’t actually affect the total market Y.

Does that make sense to you?

Right, but I’m having some trouble connecting that summation of supply and demand to your implied disconnect between productivity increases and supply. Were you specifically talking about scenarios where there is no space for output to grow, only input to shrink?

For instance, four people extract 1 ton of raw material in a day. A new machine means it only takes two people to extract that same 1 ton, but the size of the material patch stays the same so you can still only operate the one machine rather than using all four people to operate two machines. Thus increasing productivity without increasing “supply?”

How would that not be part of supply? If productivity doubles and is rolled out across the board, wouldn’t supply double as well? I mean, the total work being done would probably drop such that the supply isn’t actually doubled, but if supply was the constraint before then wouldn’t it settle somewhere between that doubled amount and the original, directly translating that increased productivity into increased supply?

I live around the Twin Cities metro of Minnesota (two cities split by a river), which installed its first passenger light rail about 20 years ago. I recently moved from the north suburbs to the south side of town. I was very excited to be able to drive 10 minutes east on the freeway to my buddy’s house within walking distance of a station to take the 10 minute light rail ride downtown for a basketball game. Previously I would have driven 20-40 minutes (depending on traffic congestion) to pay $20 to use a parking ramp because the light rail doesn’t extend north.

Over the last 20 years they have extended the rail between the airport/Mall of America on the south side to the downtown of one city, and connected that downtown to the downtown of the other city across the river. If you live anywhere north of the city proper, or more than a few miles away from the one line running south, there is little reason to use the rail system over driving the whole way. If you do though, it’s pretty great.

That’s just been my experience, my understanding is some larger cities (Chicago and NYC are what come to mind) have more robust rail systems, but many cities (mine at least) have limited access for most people living in them.