Economics
Supply
Supply refers to the quantity of a good or service that producers are willing and able to offer for sale at various prices during a specific period. It is influenced by factors such as production costs, technology, and the number of suppliers in the market. The law of supply states that as the price of a good increases, the quantity supplied also increases.
Written by Perlego with AI-assistance
Related key terms
1 of 5
9 Key excerpts on "Supply"
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.
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.
- 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- Colin Harbury(Author)
- 2014(Publication Date)
- Pergamon(Publisher)
CHAPTER 2 Supply and Demand The work of this chapter is devoted to questions of resource allocation in the market for a single commodity. Resource allocation by the price mechanism is analysed with the use of the concepts of Supply and DEMAND. In a market economy, resources are directed to the production of different goods by movements in their relative prices. If people want to purchase a good and price covers the cost of production, it is assumed that businesses will engage in its production in order to make a profit. If the price of a good is such that the amount which consumers wish to buy is not the same as the amount which suppliers are prepared to offer for sale, there will be some pressure on its price. If, on the other hand, price is such as to clear the market exactly with no disappointed consumers or producers, then the price and the market are said to be in EQUILIBRIUM. If price is above equilibrium there is excess Supply of the good and producers will tend to compete with each other by lowering price. If the price is below equilibrium there is excess demand and some consumers will be prepared to pay more for the good, which will tend to push the price up. In such cases equilibrium is said to be stable, in that deviations from equilibrium set up economic forces which restore equilibrium. In some cases, e.g. when there are time lags between price and quantity changes, equilibrium may be unstable, when divergencies from equilibrium are not self-restoring. However, when a change occurs in the conditions of either Supply or demand, such a reduction in costs or a shift in tastes, in so far as it exerts pressure on the price of a good, it will normally set up market forces leading towards a new equilibrium. The forces of Supply and demand working through the price mechanism can be thought of as helping to solve the central economic problems of any society. Prices act, as it were, as signals which perform two functions.
- Steven A. Greenlaw, Timothy Taylor, David Shapiro(Authors)
- 2017(Publication Date)
- Openstax(Publisher)
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. A Supply schedule is a table that shows the quantity supplied at different prices in the market. A Supply curve shows the relationship between quantity supplied and price on a graph. The law of Supply says that a higher price typically leads to a higher quantity supplied. The equilibrium price and equilibrium quantity occur where the Supply and demand curves cross. The equilibrium occurs where the quantity demanded is equal to the quantity supplied. If the price is below the equilibrium level, then the quantity demanded will exceed the quantity supplied. Excess demand or a shortage will exist. If the price is above the equilibrium level, then the quantity supplied will exceed the quantity demanded. Excess Supply or a surplus will exist. In either case, economic pressures will push the price toward the equilibrium level. 3.2 Shifts in Demand and Supply for Goods and Services Economists often use the ceteris paribus or “other things being equal” assumption: while examining the economic impact of one event, all other factors remain unchanged for analysis purposes. Factors that can shift the demand curve for goods and services, causing a different quantity to be demanded at any given price, include changes in tastes, population, income, prices of substitute or complement goods, and expectations about future conditions and prices. Factors that can shift the Supply curve for goods and services, causing a different quantity to be supplied at any given price, include input prices, natural conditions, changes in technology, and government taxes, regulations, or subsidies. 76 Chapter 3 | Demand and Supply This OpenStax book is available for free at http://cnx.org/content/col23729/1.3
eBook - PDF- Steven A. Greenlaw, Timothy Taylor, David Shapiro(Authors)
- 2017(Publication Date)
- Openstax(Publisher)
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. A Supply schedule is a table that shows the quantity supplied at different prices in the market. A Supply curve shows the relationship between quantity supplied and price on a graph. The law of Supply says that a higher price typically leads to a higher quantity supplied. The equilibrium price and equilibrium quantity occur where the Supply and demand curves cross. The equilibrium occurs where the quantity demanded is equal to the quantity supplied. If the price is below the equilibrium level, then the quantity demanded will exceed the quantity supplied. Excess demand or a shortage will exist. If the price is above the equilibrium level, then the quantity supplied will exceed the quantity demanded. Excess Supply or a surplus will exist. In either case, economic pressures will push the price toward the equilibrium level. 3.2 Shifts in Demand and Supply for Goods and Services Economists often use the ceteris paribus or “other things being equal” assumption: while examining the economic impact of one event, all other factors remain unchanged for analysis purposes. Factors that can shift the demand curve for goods and services, causing a different quantity to be demanded at any given price, include changes in tastes, population, income, prices of substitute or complement goods, and expectations about future conditions and prices. Factors that can shift the Supply curve for goods and services, causing a different quantity to be supplied at any given price, include input prices, natural conditions, changes in technology, and government taxes, regulations, or subsidies. 76 Chapter 3 | Demand and Supply This OpenStax book is available for free at http://cnx.org/content/col12190/1.4
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 - PDF- David Shapiro, Daniel MacDonald, Steven A. Greenlaw(Authors)
- 2022(Publication Date)
- Openstax(Publisher)
One typical way that economists define efficiency is when it is impossible to improve the situation of one party without imposing a cost on another. Conversely, if a situation is inefficient, it becomes possible to benefit at least one party without imposing costs on others. Efficiency in the demand and Supply model has the same basic meaning: The economy is getting as much benefit as possible from its scarce resources and all the possible gains from trade have been achieved. In other words, the optimal amount of each good and service is produced and consumed. Consumer Surplus, Producer Surplus, Social Surplus Consider a market for tablet computers, as Figure 3.23 shows. The equilibrium price is $80 and the equilibrium quantity is 28 million. To see the benefits to consumers, look at the segment of the demand curve above the equilibrium point and to the left. This portion of the demand curve shows that at least some demanders would have been willing to pay more than $80 for a tablet. For example, point J shows that if the price were $90, 20 million tablets would be sold. Those consumers who would have been willing to pay $90 for a tablet based on the utility they expect to receive from it, but who were able to pay the equilibrium price of $80, clearly received a benefit beyond what they had to pay. Remember, the demand curve traces consumers’ willingness to pay for different quantities. The amount that individuals would have been willing to pay, minus the amount that they actually paid, is called consumer surplus. Consumer surplus is the area labeled F—that is, the area above the market price and below the demand curve. 74 3 • Demand and Supply Access for free at openstax.org FIGURE 3.23 Consumer and Producer Surplus The somewhat triangular area labeled by F shows the area of consumer surplus, which shows that the equilibrium price in the market was less than what many of the consumers were willing to pay.
Index pages curate the most relevant extracts from our library of academic textbooks. They’ve been created using an in-house natural language model (NLM), each adding context and meaning to key research topics.
