BackThe Basics of Supply in Microeconomics
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Concept: The Basics of Supply
Introduction to Supply
Supply is a fundamental concept in microeconomics, describing the behavior of sellers in a perfectly competitive market. It focuses on how much of a good or service producers are willing to offer for sale at different prices.
Supply relates to the behavior of sellers in the market.
Quantity Supplied is the amount of a good that sellers are willing to produce and sell at a given price.
The Supply Schedule
The supply schedule is a table that lists pairs of prices and quantities supplied for a particular good. It helps illustrate how quantity supplied changes as price changes.
Supply Schedule: Shows the relationship between price and quantity supplied.
Example: The supply schedule for wheat lists different prices and the corresponding quantities that sellers are willing to supply.
Price ($) | Quantity |
|---|---|
70 | 60,000 |
60 | 40,000 |
50 | 30,000 |
40 | 20,000 |
The Law of Supply
The Law of Supply states that, all else equal, when the price of a good rises, the quantity supplied of that good rises. This is because higher prices provide greater incentives for producers to supply more.
Law of Supply: As price increases, quantity supplied increases.
Producers are more willing to supply goods at higher prices due to increased potential profit.
The Supply Curve
The supply curve is a graphical representation showing the relationship between the price of a good and the quantity supplied. It is typically upward sloping, reflecting the Law of Supply.
Supply Curve: Plots price on the vertical axis and quantity supplied on the horizontal axis.
Shows how quantity supplied changes as price changes.
Example: Supply Curve for Wheat
The supply curve for wheat can be drawn using the supply schedule above. As price increases from $40 to $70, the quantity supplied increases from 20,000 to 60,000 units.
Key Formula
Supply Function (General Form):
Where is the quantity supplied and is the price of the good.
Additional info: The supply curve may shift due to factors such as changes in production technology, input prices, number of sellers, and government policies. These factors are covered in more advanced chapters.
