Business
Supply Function
The supply function in business refers to the relationship between the quantity of a good or service that suppliers are willing to produce and the price of that good or service. It is typically represented graphically as an upward-sloping curve, indicating that as the price of the good or service increases, suppliers are willing to produce and offer more of it in the market.
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eBook - ePubEconomics for Investment Decision Makers
Micro, Macro, and International Economics
- Christopher D. Piros, Jerald E. Pinto(Authors)
- 2013(Publication Date)
- Wiley(Publisher)
Supply Function , depends on the price at which the good can be sold as well as the cost of production for an additional unit of the good. The greater the difference between those two values, the greater is the willingness of producers to supply the good.In subsequent chapters, we will explore the cost of production in greater detail. At this point, we need to understand only the basics of cost. At its simplest level, production of a good consists of transforming inputs, or factors of production (such as land, labor, capital, and materials), into finished goods and services. Economists refer to the rules that govern this transformation as the technology of production . Because producers have to purchase inputs in factor markets, the cost of production depends on both the technology and the price of those factors. Clearly, willingness to supply is dependent on not only the price of a producer’s output, but additionally on the prices (i.e., costs) of the inputs necessary to produce it. For simplicity, we can assume that the only input in a production process is labor that must be purchased in the labor market. The price of an hour of labor is the wage rate, or W . Hence, we can say that (for any given level of technology) the willingness to supply a good depends on the price of that good and the wage rate. This concept is captured in Equation 1-7 , which represents an individual seller’s Supply Function:(1-7)where is the quantity supplied of some good X (such as gasoline),Pxis the price per unit of good X , and W is the wage rate of labor in, say, dollars per hour. It would be read, “The quantity supplied of good X depends on (is a function of) the price of X
eBook - ePub- Andrew Barkley, Paul W. Barkley(Authors)
- 2016(Publication Date)
- Routledge(Publisher)
A Supply Function shows the relationship between the quantity of a good available for sale in a market and its price. Points on a Supply Function represent the quantity of a specific good that will be placed on the market at each price.- Supply = the relationship between the price of a good and the amount of that good available at a given location and at a given time.
(8.1) Qs = f(P),where Qs is the quantity supplied of a good, and P is the price of the good. When the price of a good increases, the quantity supplied of a good also increases.Figure 8.1 Individual firm short-run supply curve8.1.1 The individual firm’s supply curve
In the next several chapters, the notation Qs denotes the market, or aggregate (total), level of quantity supplied, and qs denotes a single firm’s supply, which is their contribution to Qs . This allows for a distinction between graphs for single firms and graphs for an entire market supply. As shown below, market supply is the aggregated supply of all individual firms that produce and sell the same product.Understanding supply and demand at the aggregate, or market, level, requires understanding the component parts of an individual firm’s supply curve. Specifically, deriving the supply curve for an entire market begins with a study of the costs incurred by an individual firm, as shown in Figure 8.1 ).An individual profit-maximizing producer will continue to produce a good until MR = MC. The situation shown in Figure 8.1 relates to a firm in a competitive industry. A competitive firm is a price taker, and therefore the firm has no control over the price of the product it sells. The price is fixed, constant, and equal to the MR line associated with each price: P0 , P1 , and P2 .Quick Quiz 8.1
Why does the assumption of competition result in a fixed price? Why is the price equal to the MR?For example, at a given point in time, price P2 is fixed and given. The firm cannot change it. At the market price of P2 in Figure 8.1 , this single firm will maximize profits by setting MR = MC, or P = MC at q2 units of output. If the firm produced one more unit of output (q2 + 1), the additional (marginal) costs would increase to a level above the marginal revenue line, and profits would decrease. At one less unit of output (q2
- Berkeley Hill(Author)
- 2013(Publication Date)
- Pergamon(Publisher)
Like demand, supply is a flow of goods and services. The supply of any good depends on five factors: (a) the price of the good (PA) (b) the prices of other goods which firms could produce or do produce (PB, .... ΛΟ (c) the prices of factors of production i.e. the prices of the commodities which are used up by firms (FA, . . . . ,FM)· Factors are supplied by other firms or individuals;examples are electrical power, raw materials, labour Demand and Supply 63 (d) the state of technology (T) (e) the goals, or objectives, of firms (G). In abbreviated form, supply can be shown as a function of these factors by the following: S A = f (PA. p B, · · · Λ Ϊ . F A · · · ,FM, T, G> The relationships between changes in each of these five variables and changes in supply will now be explored in turn, with the other four held constant. (a) How the Supply of a Commodity Changes with Changes in that Commodity's Price S A = f (PA, other variables constant) Normally, as the price of a good increases producers are willing to supply a greater quantity. This is shown by the supply curve in Fig. 3.12; it rises from left to right and hence has a positive slope. (Recall that a demand curve normally has a negative slope and slopes downward from left to right). Taking eggs as an example, it is reasonable to assume that, if the price of eggs increased, more would be put on the U.K. market because existing egg producers would expand and some farmers not pro-ducing eggs would set up production. Why this happens will be developed in the chapter on production economics; at this stage it is appropriate FIG. 3.12,4 Typical Supply Curve Quantity of good supplied per time period 64 An Introduction to Economics for Students of Agriculture FIG.
eBook - PDF- Rhona C. Free(Author)
- 2010(Publication Date)
- SAGE Publications, Inc(Publisher)
Likewise, sellers who are able but unwilling are also not considered to be part of market supply. Quantity supplied is defined to be the amount of a prod-uct that sellers are both willing and able to provide to the market at a specific price. The difference in these two concepts is similar to the difference between demand and quantity demanded. That is, supply refers to the entire supply relationship, while quantity supplied refers to a single price and quantity combination. Once these two concepts are understood, it becomes possible to state the law of supply. According to the law of sup-ply, as price increases, sellers increase the quantity that they are willing and able to provide to the market. If price decreases, sellers decrease the quantity that they are willing and able to provide to the market. The lines labeled 5, and S 2 in Figure 7.2 are referred to as supply curves. The lines are drawn here as linear functions to enhance the simplicity of the graph, but these lines could also be drawn as curved lines that are convex to the origin. A change in supply is illustrated by a shift in the loca-tion of the entire curve. In Figure 7.2, supply is said to increase if supply changes from S, to S 2 . An increase in supply means that sellers are willing and able to sell more at every price. For example, the movement from point Ε to G represents an increase in supply because at point E, sell-ers are willing to sell Q but Q 4 at point G. This increase v in willingness to sell occurs even though the price remains unchanged at P A decrease in supply means the sellers are v willing and able to sell less at every price and is illustrated by a shift in demand from S 2 to 5,. A change in quantity supplied is illustrated by a move along the curve. In Figure 7.2, an increase in quantity supplied is illustrated by a move-ment from point F to G.
- Steven A. Greenlaw, Timothy Taylor, David Shapiro(Authors)
- 2017(Publication Date)
- Openstax(Publisher)
When economists talk about quantity demanded, they mean only a certain point on the demand curve, or one quantity on the demand schedule. In short, demand refers to the curve and quantity demanded refers to the (specific) point on the curve. Supply of Goods and Services When economists talk about supply, they mean the amount of some good or service a producer is willing to supply at each price. Price is what the producer receives for selling one unit of a good or service. A rise in price almost always leads to an increase in the quantity supplied of that good or service, while a fall in price will decrease the quantity supplied. When the price of gasoline rises, for example, it encourages profit-seeking firms to take several actions: expand exploration for oil reserves; drill for more oil; invest in more pipelines and oil tankers to bring the oil to plants for refining into gasoline; build new oil refineries; purchase additional pipelines and trucks to ship the gasoline to gas stations; and open more gas stations or keep existing gas stations open longer hours. Economists call this positive relationship between price and quantity supplied—that a higher price leads to a higher quantity supplied and a lower price leads to a lower quantity supplied—the law of supply. The law of supply assumes that all other variables that affect supply (to be explained in the next module) are held constant. Still unsure about the different types of supply? See the following Clear It Up feature. 48 Chapter 3 | Demand and Supply This OpenStax book is available for free at http://cnx.org/content/col23729/1.3 Is supply the same as quantity supplied? In economic terminology, supply is not the same as quantity supplied. When economists refer to supply, they mean the relationship between a range of prices and the quantities supplied at those prices, a relationship that we can illustrate with a supply curve or a supply schedule.
eBook - PDF- Steven A. Greenlaw, Timothy Taylor(Authors)
- 2014(Publication Date)
- Openstax(Publisher)
When economists talk about quantity demanded, they mean only a certain point on the demand curve, or one quantity on the demand schedule. In short, demand refers to the curve and quantity demanded refers to the (specific) point on the curve. Supply of Goods and Services When economists talk about supply, they mean the amount of some good or service a producer is willing to supply at each price. Price is what the producer receives for selling one unit of a good or service. A rise in price almost always leads to an increase in the quantity supplied of that good or service, while a fall in price will decrease the quantity supplied. When the price of gasoline rises, for example, it encourages profit-seeking firms to take several actions: expand exploration for oil reserves; drill for more oil; invest in more pipelines and oil tankers to bring the oil to plants where it can be refined into gasoline; build new oil refineries; purchase additional pipelines and trucks to ship the gasoline to gas stations; and open more gas stations or keep existing gas stations open longer hours. Economists call this positive relationship between price and quantity supplied—that a higher price leads to a higher quantity supplied and a lower price leads to a lower quantity supplied—the law of supply. The law of supply assumes that all other variables that affect supply (to be explained in the next module) are held constant. Still unsure about the different types of supply? See the following Clear It Up feature. Is supply the same as quantity supplied? In economic terminology, supply is not the same as quantity supplied. When economists refer to supply, they mean the relationship between a range of prices and the quantities supplied at those prices, a relationship that can be illustrated with a supply curve or a supply schedule. When economists refer to quantity supplied, they mean only a certain point on the supply curve, or one quantity on the supply schedule.
- Teresa Bradley(Author)
- 2014(Publication Date)
- Wiley(Publisher)
For example, in Worked Example 2.7(a) the supply is given by the linear equation, Q = 2 P − 10. This describes the law of supply, a basic economic hypothesis which states that there is a positive relationship between quantity supplied and price; that is, when the price of a good increases, the quantity supplied will also increase, all other variables remaining constant. The equation of the Supply Function The Supply Function P = h( Q) can be modelled by the simple linear equation We say P is a function of Q ↓ P = c + d Q (2.5) where c and d are constants. [ 65 ] T HE S TRAIGHT L INE AND A PPLICATIONS c > 0: the vertical intercept is positive. Its value depends on the size of the terms on the RHS of the general Supply Function except the price of the good itself. d > 0: the slope of the Supply Function is positive. Price increases by d units for every unit increase in quantity supplied. The Supply Function is graphically represented in Figure 2.20. Figure 2.20 Supply Function P = c + d Q Note: P = c + d Q intersects the horizontal axis at the point where P = 0. Substitute P = 0 into the Supply Function and solve for Q: the value of Q at P = 0 is the horizontal intercept: P = c + d Q 0 = c + d Q −c = d Q − c d = Q The horizontal intercept occurs at (Q = −c/d, P = 0). A minus quantity is not economically meaningful; therefore, many economic textbooks illustrate the Supply Function in the positive quadrant only. WORKED EXAMPLE 2.7 ANALYSIS OF THE LINEAR Supply Function Find animated worked examples at www.wiley.com/college/bradley A supplier will only start to supply T-shirts when the price per unit exceeds £5. He or she will then increase output (Q) by 2 units (2 T-shirts) for every unit increase in price. (a) Plot the Supply Function in the form Q = f(P). (b) Write down the equation of the Supply Function. (c) Find the value of Q when P = 15 from the graph. Confirm your answer from the equation.
eBook - PDFMicroeconomics
Theory and Applications
- Edgar K. Browning, Mark A. Zupan(Authors)
- 2019(Publication Date)
- Wiley(Publisher)
The price of the good is also important because it is the reward producers receive for their efforts. The supply curve summarizes the effect of price on the quantity that firms produce. Figure 2.3 shows a hypothetical market supply curve for flat-screen TVs. For each pos- sible price the supply curve identifies the sum of the quantities offered for sale by the sepa- rate firms. Because all the firms that produce a particular product constitute the industry, this curve is generally called the industry, or market, supply curve. It shows, for example, that at a price of $200 per flat-screen TV, the quantity supplied will be 300,000, whereas at a price of $300, the quantity supplied will be 600,000. Note that we do not say that supply is greater at the higher price, only that the quantity supplied is. The term supply by itself refers to the entire supply curve, while quantity supplied refers to one particular quantity on the curve. This parallels the terminology used for the demand curve. Supply curves for most goods slope upward. Basically, this upward slope reflects the fact that per-unit opportunity costs rise when more units are produced, so a higher price is necessary to elicit a greater output. 3 movement along a given demand curve a change in quantity demanded that occurs in response to a change in price, other factors holding constant shift of a demand curve a change in the demand curve itself that occurs with a change in factors, besides price (such as income, the price of related goods, and preferences) that affects the quantity demanded at each possible price law of supply the economic principle that says the higher the price of a good, the larger the quantity firms want to produce Figure 2.3 $300 $200 300,000 600,000 Quantity of flat-screen TVs 0 Price S A Supply Curve The supply curve S shows the quantity of flat-screen TVs firms will be willing to produce at alternative prices.
eBook - PDF- Steven A. Greenlaw, Timothy Taylor, David Shapiro(Authors)
- 2017(Publication Date)
- Openstax(Publisher)
price floor producer surplus quantity demanded quantity supplied shift in demand shift in supply shortage social surplus substitute supply supply curve supply schedule surplus total surplus a legal minimum price the extra benefit producers receive from selling a good or service, measured by the price the producer actually received minus the price the producer would have been willing to accept the total number of units of a good or service consumers are willing to purchase at a given price the total number of units of a good or service producers are willing to sell at a given price when a change in some economic factor (other than price) causes a different quantity to be demanded at every price when a change in some economic factor (other than price) causes a different quantity to be supplied at every price at the existing price, the quantity demanded exceeds the quantity supplied; also called excess demand the sum of consumer surplus and producer surplus a good that can replace another to some extent, so that greater consumption of one good can mean less of the other the relationship between price and the quantity supplied of a certain good or service a line that shows the relationship between price and quantity supplied on a graph, with quantity supplied on the horizontal axis and price on the vertical axis a table that shows a range of prices for a good or service and the quantity supplied at each price at the existing price, quantity supplied exceeds the quantity demanded; also called excess supply see social surplus KEY CONCEPTS AND SUMMARY 3.1 Demand, Supply, and Equilibrium in Markets for Goods and Services A demand schedule is a table that shows the quantity demanded at different prices in the market. A demand curve shows the relationship between quantity demanded and price in a given market on a graph. The law of demand states that a higher price typically leads to a lower quantity demanded.
eBook - ePubThe Industrial System (Routledge Revivals)
An Inquiry into Earned and Unearned Income
- J. Hobson(Author)
- 2013(Publication Date)
- Taylor & Francis(Publisher)
Similarly with demand. If we are to place it in true relation with this supply, demand must mean either the quantity of goods which buyers are willing and able to buy at the current price, or the quantity of money buyers are able and willing to pay for goods at the current price. If, however, taking these meanings of the terms, we turn to the mechanism of the market, we find them defective in that they furnish a merely statical setting to a dynamic problem. Supply and demand, thus conceived, are stationary amounts. Now price-change is a process, and in order to understand this process, what we have to estimate is the rate at which the stock of goods is increased and depleted—a flow and not a fund. But if we conceive supply and demand as quantities of goods (or money) regarded at a particular time, we conceive them as funds. In order to study price-change properly, we must express supply and demand as flows, i.e. measure them as processes taking place in time. Consistently with this purpose, supply may mean the total stock offered for sale at a price during any given time, and demand may mean quantity of purchases at a price within a given time, or quantity of money expended at a price within a given time. But it will be more convenient to define the terms more narrowly, confining supply to the rate of increase of stock: demand to the rate of withdrawal from stock (or the rate of payment of money withdrawing from stock). Thus alone do we rightly come to regard supply and demand as processes or ‘flows’ and the supply and demand with which we concern ourselves will be equivalent to the rate of production and of consumption. 1 Where goods flow out of a stock at the same rate as they flow in, the price remains firm, and demand and supply will be said to be equilibrated; where the inflow is faster than the outflow, prices fall, and supply will be said to exceed demand; where the outflow is faster, prices rise and demand exceeds supply
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