Take a look at this post from the Marginal Revolution blog:
1.) Draw a supply and demand diagram of the market for sawdust:
What is it that shifts the supply curve? Which direction does it shift in?
2.) Now draw a supply and demand diagram of the market for milk: What is it that shifts the supply of milk?
3.) What does Alex mean when he says that “capitalist production system minimizes waste?” Example: If a business owner turns the lights off at his factory every night instead of just keeping the lights on all night, who pockets the savings?